NATIONAL INSURANCE (No. 2) BILL

HC Deb 17 June 1969 vol 785 cc315-83

Order for Second Reading read.

Mr. Speaker

May I announce to the House that I have not selected the Amendment in the names of the hon. Member for Kensington, South (Sir B. Rhys Williams) and his right hon. and hon. Friends. This will not affect the debate. The reasons set down in the Amendment, together with other reasons for or against giving the Bill a Second Reading, can be advanced in the debate.

6.38 p.m.

The Minister of State, Department of Health and Social Security (Mr. David Ennals)

I beg to move, That the Bill be now read a Second time.

Before coming to the main provisions of the Bill, I want to look at some of the problems with which it is intended to deal. The Bill is about how the fit, earning population fulfils its responsibilities to those who are not fit or earning, and as a civilised society we have a responsibility to ensure that the earners make an equitable contribution to the welfare of the non-earners, whether they be old, sick, widowed, or unemployed.

We must straightaway accept that the present National Insurance Scheme has grave weaknesses. On one hand, it provides for the retired population an income which in at least 2 million cases is inadequate for the maintenance of a reasonable standard of living. On the other, to pay out pensions even at the present level we have to impose a contribution burden which falls too heavily on the lower-paid worker. Both these defects will be remedied in the new scheme for national superannuation which will come before the House in the autumn; and, being a scheme for earnings-related contributions and benefits, it will bring more generous pensions and the financing will be far more equitable than the present basically flat-rate scheme.

Its aim eventually will be to provide pensions high enough to live on without other means and to get away from a situation in which nearly one-third of all retirement pensioners are dependent to some degree on supplementary benefits. But the target date for the introduction of the new scheme is April, 1972, and, therefore, we have to operate an outdated and inadequate scheme until then. We were determined to use such limited room for manoeuvre as exists and decided to adjust the present scheme as far as we could to meet the needs of our people in the interregnum; but we make no pretence that what we can achieve in the Bill is wholly adequate. The problems we have had to face this year have proved, if further proof were needed, the necessity and, indeed, the urgency of introducing a totally new system of national superannuation.

The main problem has been to raise contributions not only to cover the higher level of benefits, but to set the National Insurance Fund in balance again. The noble Lord the Member for Hertford (Lord Balniel) was very free last week with his allegations of major short term miscalculations. He should be well aware—and if he is not his right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), having directed these affairs over a number of years will be able to tell him—that the whole difficulty is that the scale of the National Insurance Fund is so vast that quite minor variations from the forecasts can have very impressive results.

A variation of only 1 per cent. in income and outgo, which in normal forecasting would be thought a negligible variation, can make a difference of about £50 million in the financing of the fund. The factors which have led to our having to pay out more in benefits than has been raised by contributions and from the Exchequer grant are of very great social significance and we ought to consider them with some care. The trends that are apparent have considerable relevance to us not only now, but in planning the future social security provision for our nation.

The first factor is the very substantial growth in the number of retired people. Only 12 years ago there were 4¾ million pensioners. Now, the figure is more than 7 million, an increase of 50 per cent.; and the rate of increase is steadily rising. Between 1960 and 1964, there was an increase of about 500,000. Between 1964 and 1968, the increase was nearly 800,000; but the most remarkable increase of all has come in the last two years. Between March, 1967, and the end of 1968, a period of only 21 months, the number of pensioners rose by about half a million, from about 6½ to about 7 million.

It was, of course, anticipated that the pensioner population would increase, and from the beginning of the scheme it was realised that up to the 1980s the number of old people would go on growing much faster than the numbers of working age. There is no mystery about this. It is simply past events working themselves out. The size of the population of working age is at present largely determined by the low birth rates of the 1920s and 1930s, whereas the population of retiring age is made up of the survivors of the very large number of births around the turn of the century, when the birth rate reached a level which has not since been equalled. The proportion of old people to people of working age increased from a fifth in 1948 to a quarter in 1967.

Some provision was made against this in the earlier Acts, and in 1959 a system of quinquennial increases was introduced. These were special increases to be made in both flat-rate and graduated contributions every fifth year, starting in 1965, without any corresponding benefit increase. The object was primarily to meet the demographic changes I have explained and to keep the National Insurance Fund in balance on the pay-as-you-go principle. The amount of extra money which was due to be raised in this way to keep the scheme in balance was large—nearly £100 million, for example, in April, 1970. On top of this there have been some other factors working in the same direction which were not very easy to forecast and which have only recently manifested themselves.

First, during the past few years, as a result of improved health and welfare, people have been living longer on average, than was foreseen. Naturally, this is something we all welcome and of which we have every reason to be proud but it is bound to upset the estimates in relation to the fund. Secondly, people have been retiring earlier. The proportion of men who take their retirement pension at 65 has risen from nearly one-half in 1961 to about two-thirds at the present time.

Again, we must welcome the fact that people feel able to retire early and that they can afford to do so, because of better social security benefits and better occupational pensions; but it does affect the level of the fund. All these factors are cumulative. The result is that the number of pensioners rose by over 7 per cent. in less than two years between March, 1967, and the end of 1968. This is one very important factor.

Then we come to the question of short-term benefits. The level of unemployment has been slightly higher than was allowed for in 1967. During the year 1968–69 the number of unemployed averaged 2.3 per cent. We have instructed the Government Actuary to base his calculations on about the same level this year, but falling to 2.2 per cent. in 1970–71. Caution is needed particularly because it is now widely recognised that a higher level of unemployment is associated with any given level of economic activity than was the case in the early 1960s.

No one factor is responsible for this, but it is certainly the case that with the introduction by the present Government of the earnings-related supplements, at a time when my right hon. Friend the Member for Lanarkshire, North (Miss Herbison) was the Minister, together with redundancy payments, working people are now in a position to spend longer looking for jobs that suit their talents and their skill than was possible previously. They are no longer forced to take the first job that comes, whether suitable or unsuitable, and we must welcome this fact.

I would like at this juncture to say a few words on the question of fraud, because it is sometimes implied that this leads to quite a large leakage of the funds. The hon. Member for Liverpool, Garston (Mr. Fortescue) has put Questions on that subject from time to time. Allegations have recently been made in the Press and elsewhere about people in the building industry drawing unemployment benefit while working as self-employed sub-contractors. We know than this kind of abuse does go on. Among half a million unemployed there are bound to be some who set out to defraud; but it is important to get the balance right. It would be quite wrong to suppose that fraud is widespread, or to say that we are doing nothing about it.

The particular question of sub-contracting in the building industry and the abuses of many kinds to which it gives rise is, as the House knows, a matter which the Government have under active consideration following the Phelps Brown Report. It is not a new problem for the Department of Employment and Productivity, which administers unemployment benefit on our behalf, and which is seeking to tackle this opening for abuse. It would be impossibly expensive to set up a system of individual surveillance over all unemployed people, the overwhelming majority of whom are genuine and honest.

We have a team of special investigators, but inevitably we must rely to a large extent on evidence obtained when a claimant comes to the exchange, from employers, and especially from the public at large. Those who have positive evidence of abuse should come forward with that information and should not sit mum.

Whenever there is evidence or suspicion of fraud, urgent action is taken to check it. For example, a man may be required to sign on daily. There were over 700 successful prosecutions for unemployment benefit fraud last year compared with about 550 in 1967. I can, therefore, assure the House that increases in the cost of unemployment benefit are not to be ascribed to the lax disbursement of contributors' money.

Mr. Tim Fortescue (Liverpool, Garston)

Would the hon. Gentleman agree that there is room for tightening the administration at employment exchanges? I know from experience that the clerks are anxious to find suitable posts for applicants for unemployment benefit, and they do a very good job. But, from my experience, they do not come to the conclusion sufficiently early that certain applicants are not genuinely seeking work and therefore should be denied benefit.

Mr. Ennals

I very much doubt whether the clerks should come to that conclusion too early. It would be most unfortunate if they came to an early conclusion about a genuine and honest claimant. But when there is suspicion, there are a number of courses of action which the Department can take, and it is as anxious as we are that abuse—and there is an element of abuse—should be checked.

I come to the question of claims for sickness benefit. The cost of sickness benefit under this and the previous Conservative Administration has been rising by an average of about 3 per cent. a year if changes in the level of benefits are discounted. Previous assumptions had been that this would probably level off, but it has not happened. In 1967–68, sickness benefit was paid for 308 million days compared with 262 million in 1961–62, 270 million in 1963–64 and 282 million in 1966–67.

I do not say that those figures suggest that the amount increases steadily every year. Inevitably, it depends on whether it was an epidemic year. During the last three years there have been two 'flu epidemics in the winter. But the graph shows an upward rise. In the Department we are carefully studying the significance of this increase. But certain conclusions can already be drawn from the analysis of the statistics.

First, there seems to be no significant change in the proportion of people claiming sickness benefit. In any one year only about one-third of the population at risk—about 21 million—claim sickness benefit, and only about one-third of them claims more than once. Two-thirds do not claim at all.

Secondly, the evidence is that more frequent short spells of sickness tend to be a feature of younger beneficiaries. I will not draw any conclusion as to why that should be so.

Thirdly, longer spells of sickness tend to be a feature of older beneficiaries. It has been possible to do more research in this respect and to analyse it. About half of all the days lost in 1967–68 were attributable to people whose spells of incapacity lasted more than six months.

There has been a gradual growth in the number of long-term sick. There are about 400,000 insured workers who have been sick for more than six months, and of these about 320,000–240,000 men and 80,000 women—have been sick for more than a year. It is right to mention these facts, because many people suppose that the substantial proportion of sickness claims is made by the short-term sick. Recent checks show that three-quarters of the long-term sick were over 50 years of age and that the majority of them were, on medical advice, unlikely ever to return to work. For the most part, they will remain on sickness benefit until they reach retirement age. Thus, a very small minority of the insured population account for half of all the days lost from sickness.

Statistics relating to the long-term sick show a marked increase in incapacity due to mental illness and to diseases normally associated with old age, such as arteriosclerosis, arthritis and degenerative heart disease. This may well be a reflection of a changing pattern of disease and medical skill in prolonging life. The achievements of medical science which have prolonged life have been responsible not only for a reduction in the mortality rate, but for keeping alive, on sickness benefit, people who would otherwise have died.

Mr. Frank Hooley (Sheffield, Heeley)

Does my hon. Friend's interesting analysis include sickness due to industrial injury as opposed to what one might call ordinary disease?

Mr. Ennals

I have been dealing only with a detailed analysis of sickness benefit claims and not with industrial injuries. I do not think that there is any evidence of a substantial or steady increase. If that is not so, I shall ensure that my right hon. Friend, when winding up the debate, deals with the point.

A fourth factor in explaining the difficulties of the fund is that people who retire earlier or who are sick and unemployed do not pay contributions. Therefore, there is a double effect, Moreover, there was a fall in the working population amounting to about 200,000 between 1966 and 1967, and the downward trend appears to have continued during 1968. Some of the elements in this are to be welcomed, such as the fact that many more young people stay on in full-time education longer than before and come on to the labour market later. We welcome things of this sort, but allowance must be made for the effect on the fund.

I have tried to explain the difficulties fully and frankly. A very substantial sum must be raised, first, to support the current benefits and then to raise them to the new levels—in total about £430 million in a full year. This faced the Government with a dilemma. One possibility would have been to let the Act take its course and have a quinquennial increase next April when the Act would have required it. But we decided that this would be wrong and that people would prefer, not to take two bites at the cherry, but to face the situation now and absorb the increases due in April, 1970, into the up-rating, as was done in 1965.

If we were to do it all at once, we had to decide how to do it. The traditional way of raising the amount required would have been to put a flat-rate increase equally on employers and employees. But this would have meant a flat-rate increase of about 3s. 4d. a side—too severe a burden for members of the lower-paid population. Moreover, it would have been a move backwards instead of forwards to the new scheme. In our thinking in preparing the Bill, we have had in mind the principles which will be the basis of the legislation to be introduced in the autumn.

Neither would it have been right to put a disproportionate burden on employers in present economic circumstances. Apart from anything else, it would have conflicted with the future development of social security as the Government see it in the new scheme. The same objection would apply to any suggestion of a disproportionate increase in Exchequer support, although clearly there could be no question of adopting a solution which reduced the proportion.

As my right hon. Friend announced last week, the Government decided to restructure the present graduated system so that it became a stepping stone to the new scheme and could bear most of the burden of the increase. The solution is threefold—graduated contributions above £18 to be increased by 2¾ per cent., revaluation of graduated pensions—which I will come to later—and introduction of a special additional Exchequer payment concurrently with the increase of graduated contributions. That is how we have been able to hold the flat-rate increase as low as 1s. for a man—11d. for a woman—for about 6 million workers who are earning less than £18 a week. I believe that the House and the country recognise that this was a wise and fair decision, and I hope that the noble Lord will agree that we were right.

We have asked the more highly paid to pay the largest contribution increase. The additional 7s. 7d. which a man earning £30 a week will pay represents an additional 1.3 per cent. of his earnings. Some critics have said that this is a heavy impost, but it is exactly the same percentage increase as was imposed in 1961, when hon. Gentlemen opposite had responsibility, upon a man with equivalent earnings by the Conservative Administration when they introduced their graduated scheme. I hope that we shall have no criticisms from them on this score.

Under the contribution structure we propose, a man in participating employment earning £12 a week will pay 8.5 per cent. of his gross earnings as against 8.1 per cent. at present—an increase of 0.4 per cent. A man on £23 a week, the national average, will pay 6.4 per cent. as against 5.6 per cent. at present—an increase of 0.8 per cent.; and a man on £30 a week 5.7 per cent. as against 4.4 per cent., an increase of 1.3 per cent. We are thus asking the man on £30 to pay an additional proportion of his earnings three times as great as that falling upon a man on £12 a week and half as much again as that paid by a man on average earnings.

In using the earnings-related basis as the mainstay of our contributions increases we are deliberately moving towards the principles of the new scheme of national superannuation, which will be wholly earnings-related. The percentage contribution under the new scheme will be 6¾ per cent. for all. Hon. Members will see, therefore, the effect which this will have on both the higher-paid and the lower-paid workers.

It should be made clear that the higher level of contributions will earn higher pension rights for those within and those outside the existing graduated scheme. It is not a higher contribution for nothing: it is a higher contribution which brings a higher pension entitlement. Of course, this is also in line with our new scheme, whereby those who earn more will pay more and, in return, receive more pension. We are convinced that this is the right principle. We made it clear in the White Paper, "National Superannuation and Social Insurance" that we adhere firmly to the contributory principle for national superannuation. I am sure that this is what people prefer—not to receive a pension as "a donation", to quote the right hon. Member for Kinross and West Perthshire (Sir Alec Douglas-Home) when Prime Minister, but to earn their rights to pensions and benefits by their own efforts.

It is quite unrealistic to talk of transferring the cost of retirement pensions from the National Insurance Fund to the Exchequer, as some hon. Gentlemen have done. This would mean the equivalent of an increase of 5s. 3d. on the standard rate of income tax. If pensions were tax-financed, they would almost certainly also be lower than under the contributory basis. I fear that, under a Conservative Chancellor, they would be means-tested. It is part of current Tory philosophy, if that is not too generous a word to describe as much as I can understand of Tory thinking on these questions.

I think that people are more willing to pay for a pension which is specific and theirs by right than they are to pay higher taxes to meet the many and varied types of Government expenditure.

It has been said that what we propose is moving very near a form of income tax. This is a point made in the Motion of the hon. Member for Kensington. South (Sir B. Rhys Williams) in which he seemed to be commenting on the Bill which will be introduced in the autumn, before he has seen it. We will look forward to his next Motion when the Bill is produced. Certainly, this is not moving towards a new form of income tax. Those who are called upon to pay more will earn more benefit, and that is no part of an income tax system. This is the touchstone of a true scheme of social insurance.

The whole point is that, in a contributory scheme, the State, in return for contributions paid during the contributor's working life, undertakes to provide pensions directly related to those contributions when the contributor retires. The alternative of a tax-financed—

Mr. John Pardoe (Cornwall, North)

The hon. Gentleman is pursuing a tortuous argument. He must recognise that there is no relation between the value of the contributions which I or he makes during the course of his lifetime and the payments which he will get from a generous or ungenerous State at some future date when he retires. They are not related in any sense at all.

Mr. Ennals

I should be interested to hear what the right hon. Member for Kingston-upon-Thames had to say when he introduced his graduated scheme, to which about 20 million workers pay in one form or another according to their earnings, so that their contributions affect their benefits. Admittedly, this is only a topping-up of a flat-rate system, and the new scheme in the autumn will, of course, be entirely earnings-related, so that what a man gets will flow from his earnings-related contributions—

Mr. Pardoe

No.

Mr. Ennals

The hon. Gentleman is quite wrong. No one can say that, under the new scheme—

Mr. Speaker

Order. We are debating, not conversing.

Mr. Ennals

I am debating, anyway, Mr. Speaker.

The alternative of a tax-financed scheme leaves the contributor with no assurance that his pension will bear any relationship to the money which he may have paid in by way of tax. Under a tax-financed scheme, his prospects of pension do not have the in-built secure guarantee provided by a contributory scheme. We want to give to every contributor the assurance that, in his retirement, after a lifetime's contributions, he can count on a pension closely related to his contributions before retirement and guaranteed against any fall in value during his retired life.

This, of course, is the essence of the principle, not of this Bill, but of the new scheme which will be introduced in the autumn. These points have been made many times from these benches and they are spelled out in the White Paper.

I want to turn now to the specific provisions of the Bill. The existing basic National Insurance flat rates are £4 10s. for a single person, and £7 6s. for a married couple. Under the Bill, these will be increased, from the week commencing 3rd November, by 10s. and 16s. respectively, to £5 and £8 2s. The objective is to restore to these benefits the value lost because of the rise in prices in the two years since the benefits were last increased in October, 1967.

The values we achieved in 1967 were, I would remind the House, 20 per cent. above the values for these benefits which we found when we took office in 1964 that is, 4s. in the £ better. This improvement means extra spending power for pensioners, compared with 1964. That is what the Bill and the record of the Government means for pensioners.

I have little doubt that some of my hon. Friends will remind me that the Government have described inflation-proofing as only a minimum objective in their long-term pensions policy. That is quite right. We have made it plain that our long-term objectives include making sure that pensioners and other beneficiaries will continue to share in the nation's rising living standards. But we have also made it plain that any responsible Government must take into account the general economic situation. A sound economy is an indispensable foundation for a worthwhile income for pensioners no less than for the country as a whole.

We cannot at the present time do more, but we are determined to maintain the value of the contributory benefits on which elderly people, in particular, rely so much. This is an obligation we owe to those with incomes a little above supplementary benefit levels as well as to those who are assisted by our supplementary benefit scheme.

With proposals for pensions about 20 per cent. better in real terms than those which we found when we took office, I need no further answer to the noble Lord who, a week ago, when my right hon. Friend made his statement, was disposed to criticise the proposals as inadequate. I should like to know from him tonight whether a Government made up of his right hon. and hon. Friends would give a higher pension than is contained in the Bill. If so, how much higher, and how would they finance it? The House is entitled to know what their proposals would be if, unhappily, they had responsibility.

Or would they, as I suspect, put pensions on a means-tested basis, thus destroying the insurance principle? Up to now, there has been a deathly hush from the Conservative benches about their policy on these questions. It is not just the House that is anxious to know their thinking. Even the country might wish to know what their policies are. The chance will shortly come when the noble Lord speaks.

These increases in the flat-rate national insurance benefits will affect about 7 million retirement pensioners, about 530,000 widows, including 140,000 widowed mothers. About 40,000 widows who at any one time are receiving the 26 week widow's allowance will benefit from the increase of 13s. in that allowance. About 1 million people will be receiving the increased flat-rate sickness benefit, and unemployment benefit is paid to roughly 300,000 beneficiaries. In all, about 9¾ million people will benefit from increases in national insurance benefits and about 320,000 from increases in industrial injuries benefits, coming to a total of well over 10 million people.

It is figures like these, together with the earnings-related supplement for those who are sick or unemployed, which led my right hon. Friend to say last week that we were getting better value for money than ever before. I was surprised to see that the Daily Telegraph, in publishing the Gallup Poll on Saturday, implied that my right hon. Friend was talking only of pensions. They headlined the story: Majority Say Present Pensions Poor Value". The results of the poll, for anyone who read beneath the headline, showed that very large majorities said that they had good value for money in maternity benefits, in sickness benefit, in unemployment benefit, and in the National Health Service. The Daily Telegraph seemed to assume that the weekly insurance stamp does not extend to the whole range of social security benefits. The results in the newspaper were a very full justification of my right hon. Friend's statement.

I turn now to the industrial injuries scheme. I want to remind the House that the Bill increases disablement pension from £7 12s. to £8 8s. for an assessment of 100 per cent. Injury benefit, which is payable with the earnings-related supplement, is to be increased by 10s., from £7 5s. to £7 15s. This preserves the differential advantage of this benefit over national insurance sickness benefit at £2 15s. As the House knows, increases are also proposed for other industrial injury benefits.

As a background to the improvements in national insurance benefits proposed in the Bill, we must also keep in mind the great improvements which the Government have made in provision for the most vulnerable members of the community through the supplementary benefits scheme, for which the country owes a debt of gratitude to my right hon. Friend. We shall, of course, be discussing these in detail in the debate on the draft Supplementary Benefit Regulations, which have been laid today. The new rates will provide an increase of between 23 per cent. and 24 per cent. in real purchasing power since 1964, even excluding the 10s. long-term addition introduced in 1966.

The new increases are a second instalment, additional to the increases which have been in payment since last October. The two sets of increases, taken together, will mean that the single householder and married couple will have had increases in their income of at least 10s. and 16s. respectively since October, 1967—that is, the same total increase as in the standard rates of national insurance benefits.

I hope that this will help some hon. Members to explain why, in the ordinary case of single householders, the fact that they will get 10s. increase in retirement pension or other national insurance benefits will mean that they will need 5s. less supplementary benefit to give them the 5s. extra income above 1968 rates and at least 10s. extra above the 1967 rates.

There are two other benefit changes which the House will wish to note. First, the Bill proposes a further relaxation in the earnings rule for retirement pensions by raising from £6 10s. to £7 10s. the level of earnings beyond which the earnings of a retirement pensioner during the five years after minimum pension age begin to reduce pension entitlement. Under these proposals, taking a married man as an example, the combined pensions of the pensioner and his wife, plus earnings which do not affect his pension, could amount to £15 12s.

This increase in the level at which the rule begins to operate is justified by the movements in average earnings since the rule was last changed, taken together with the benefit increases we now propose. It is proposed that the change should come into operation in November, with the benefit increases.

Secondly, we are providing for an extension of cover for death grant in respect of handicapped people who have never themselves been able to work and contribute to insurance. The Bill provides that when a handicapped person dies death grant may be payable on the insurance of a close relative with whom he or she was residing. I know that, though the numbers affected are small, the absence of cover has often caused much distress and concern to responsible parents and other relations.

I am sure that hon. Members on both sides will welcome this proposal. In the White Paper we recognised the need to remedy this gap in the existing provisions, and I am glad that we have been able to take this early opportunity to put it right.

Mr. Alec Jones (Rhondda, West)

Can my hon. Friend give an assurance that this cover will apply to the handicapped who not only reside with others in the way he described, but who are living in, for example, homes and hospitals?

Mr. Ennals

I will look into the matter. Certainly, these provisions cover those who are the responsibility of insured persons. The question of defining where the person concerned lives is one which I will look into carefully, since I would rather not answer my hon. Friend off the cuff.

The topics I have mentioned cover the principal benefit changes proposed in the Bill. I will do no more at this stage than to note two other provisions. First, as explained in the Memorandum to the Bill, the opportunity is being taken, both by amending Schedule 4 of the Industrial Injuries Act and by paving the way for further regulations, to clarify certain obscurities relating to the assessment of disablement which have been the subject of criticism by the National Insurance Commissioner and the Court of Appeal. Secondly, the Bill provides powers to make regulations which will be needed for the transition to decimal currency on 15th February, 1971.

I have dealt with the main provisions of the Bill. I will comment briefly on a major decision which my right hon. Friend the Secretary of State announced last week. He said that all pensions earned under the present graduated scheme—including the new pension rights earned by the higher contributions provided for in this Bill—will, after the new scheme has been introduced, be revalued every two years to protect them from erosion through rising prices. This is the same sort of inflation-proofing which will be applied to all pensions—flat rate and new scheme pensions—under the new scheme.

This will mean a better deal for 20 million workers who have been contributing to the graduated pensions scheme introduced by the right hon. Member for Kingston-upon-Thames. The 1961 scheme—we have said this many times—was a swindle. [Laughter.] The right hon. Member for Kingston-upon-Thames laughs, but he knows that what I am saying is correct.

Mr. John Boyd-Carpenter (Kingston-upon-Thames)

The hon. Gentleman must not draw that inference. It is possible that I was drawing the inference that it was a pleasure to have him as a major associate of mine.

Mr. Ennals

We in the Government have been desperately attempting to make a respectable woman of the right hon. Gentleman's scheme. It has been a difficult job and we have been able to go only part of the way towards succeeding. We have not been able to ensure that the modest pensions which the contributions under his scheme earned are protected against rising prices because part of the swindle of the right hon. Gentleman was not just the size of the pension that was earned but the fact that it shrivelled year by year.

Every year since the right hon. Gentleman introduced the scheme there have been rising costs and, therefore, every year the pension earned under the scheme with the graduated contributions that have been paid has been shrivelling and has gone on shrivelling until the moment of retirement of those people who thought that they would get a decent pension but who found, because of rising prices, that it had been reduced.

Mr. Boyd-Carpenter

Is the hon. Gentleman aware that his right hon. Friend described the 1959 Act as a swindle not on those grounds, but on the ground that a major part of the graduated contribution was used to pay current flat-rate benefits? Is not that precisely what this Bill is designed to do?

Mr. Ennals

There were several reasons.

Mr. Boyd-Carpenter

Really!

Mr. Ennals

I assure the right hon. Gentleman, if he is suggesting that there was only one reason why his scheme was a swindle, that there were several. If he wishes, we can list others.

At any rate, we have been able to remove one element of the swindle, but it would have been difficult for us, in equity, to have decided to raise the contributions, as we have under the graduated scheme, without ensuring that those who were paying a higher graduated contribution would get a fair deal for their money. This is the principle that lies behind the decision that the Government have taken. As a result of the Government's decision, all graduated pensions earned between 1961 and 1972 will be subject to the biennial review so that the value of these pensions will keep abreast of changing money values.

We are, therefore, providing some protection from 1972 against what I believe were the inequities in the scheme which the right hon. Gentleman introduced in 1961. As my right hon. Friend said last week, this decision will lead to some problems for those who have contracted out of the State's graduated scheme, but there is a good deal of time for consultation and adjustment, since this change will not be completed until after 1972. This decision should be warmly accepted, along with the Bill, as a further step towards the new scheme outlined in Cmnd. 3883.

7.25 p.m.

Lord Balniel (Hertford)

I should begin by thanking the Minister, on behalf of the House, for the careful explanation which he has given of the Bill, an explanation made on behalf of the Secretary of State for Social Services, who apparently leads his men like the Duke of Plazo Toro, from behind. We have noted that the right hon. Gentleman has flitted in and out of the House. We hope that he will take part because we always enjoy his contributions to our debates on the social services.

The Minister will probably agree that there are certain additional arguments which can be adduced about the Bill and which perhaps throw a rather different light than that which he has thrown on some parts of the Measure. There are, of course, two main sections of the Bill; that part which increases benefits and that part which increases contributions. In debating this subject, I fear that one is forced to use a number of statistics. I therefore apologise in advance for my speech containing a number of figures.

Before saying anything further, I wish to make it clear that I agree that an increase in the basic pension to restore it to its previous purchasing power is very necessary indeed. The rise in the cost of living since the last pension increase—the present pension having been fixed in October, 1967—has been more rapid than at any time since the period of the last Labour Government in 1951.

In debating this Measure we are, for the first time since the astonishing incident in the Budget—when increased benefits were announced but no statement was made about how much they would cost or how they would be paid for—debating the increased benefits in the knowledge of who will pay and how much the exercise will cost—or at least we know how much it will cost for the next two years.

What a long way we have come in these last two months. What a vast escalation there has been in the cost of the scheme. What deception by the Chancellor and what confusion by the Secretary of State. The right hon. Gentleman wants to make his mark in history. He will. There is a Beaufort scale for wind force. They are now establishing a Cross-man scale for chaos. It was a happy interlude of complete farce while it lasted. The first Bill was ready and we were told that it would be laid before the House. Then it was rejected by the Cabinet. This interlude of farce could not have gone on for ever, and now we have the first opportunity of examining the Government's proposals.

The Burget imposed an extra burden of no less than £340 million a year, and the Chancellor tried to sweeten his Budget speech by saying that pensions and benefits would be going up. He refused to tell us who would pay. Indeed, he did not even tell us the total cost. Instead, we were told that the arrangements about who would pay for the increased benefits had not yet been worked out. He would only say that about £250 million would be needed to pay for the benefits, plus what he described as a "substantial extra provision" to get the National Insurance Fund out of the red.

We had to put down a Motion condemning the Government, and only because of our Motion was it revealed that the cost would be £430 million. Of this £70 million would have to be found from general taxation and the remaining £360 million would be found from extra contributions. The total tax and contribution burden which is being imposed this year over and above the figures of last year, taking the Budget and this Bill together, is no less than £770 million. The burden on contributions, the largest ever increase, will be reflected in wage demands. The burden on industry, which will be reflected in prices, will be very heavy indeed. As the C.B.I. said the other day: The additional imposition substantially exceeds the total tax increases already announced in the Budget. The Minister of State has explained how the payments are to be spread. His proposals have to be looked at against the background of what has happened to the contributions since the present Government came into office. On 28th January, 1963, speaking of the flat-rate contribution, the right hon. Gentleman said; Each time the Government put one shilling on that tax"— he was referring to the poll tax— they make the burden more intolerable."—[OFFICIAL REPORT, 28th January, 1963; Vol. 670, c. 657.] I have a certain sympathy with the general viewpoint that the right hon. Gentleman expressed. The flat-rate contribution particularly affects the lower paid. In 1964, when the Conservatives left office, the flat-rate contribution was 11s. 8d. a week for an employed man. Today it is 16s. 8d. In November the Secretary of State will increase it by 1s., and it will be 17s. 8d. So by November this year the flat-rate contribution will have increased by 6s., an increase of well over 50 per cent. The right hon. Gentleman said that the burden of the flat-rate on the lower-paid worker is very substantial. It is right that the House should at least know that the flat-rate contribution when we left office was 3.2 per cent. of average earnings. The right hon. Gentleman is increasing it to 3.7 per cent. of average earnings in November this year.

Take the man earning £30 a week who will pay the maximum extra contribution of 7s. 7d. in November. In 1964 he paid 19s. 4d. Today he pays 26s. 5d., and next November he will have to pay 34s. a week. So between 1964 and November this year he will have had an increase of no less than 14s. 8d. a week, an increase of well over 70 per cent., in his weekly contributions. These extra contributions are very heavy burdens on employees, but the extra cost on industry is even heavier. It is this which will be directly reflected in prices.

I give the example of the impact of the flat-rate stamp because I believe that is telling enough. In 1964 on the flat-rate stamp in respect of each employed man the employer's share was 9s. 8d. After taking into account the Budget increases in selective employment tax which start next month, employers will pay a total of 64s. 11d. for each employed man. In November that goes up to 65s. 11d. So between 1964 and November this year the employer's share of the flat-rate stamp, including S.E.T. and redundancy payments, will have gone up by no less than 51s. 3d., an increase of 620 per cent. from 9s. 8d. to 65s. 11d.

The increase in the employer's share of the stamp for a man earning £30 a week, or more, will be even greater. I notice that in the tables in the White Paper, Command 4076, the figures exclude S.E.T. and redundancy payments in an attempt to make the picture look rather less harsh, but I think it right to include them because they are part of the burden on employers arising directly in respect of their employees.

Mr. Ennals

Would not the noble Lord have thought it confusing if we produced S.E.T. figures which bore no relationship to the contributions paid for benefits? We are talking about national insurance, not taxation.

Lord Balniel

I thank the hon. Gentleman for his very patronising intervention. I have explained why I think it right, when considering the burden imposed on the employer and on industry which is directly reflected in costs, to take into account all these other burdens such as S.E.T. and the redundancy fund.

The sadness is that these increased contributions called for by this Bill will not secure any real advance in the living standards of old people. They are merely necessary to retrieve the purchasing power of the pension, which is falling very fast indeed. The scale of the rescue operation which is needed, and which the right hon. Gentleman has embarked on, can be seen in the figures I shall give of price rises in recent years. In 1966 prices rose by 3.7 per cent.; that is 9d. in the pound. In 1967 they rose by 2.6 per cent.; that is 6d. in the pound. Last year they rose by 6.2 per cent.; that is 1s. 3d. in the pound. There is no sign at all from all the indications I have seen that this rapid rise in prices is falling off. Indeed, every indication is that the rapid rise in prices is accelerating.

The Retail Price Index has now risen for 19 consecutive months. This is the longest continuous price increase since the war. The last Budget, with its S.E.T. increases, with its purchase tax increases, with petrol tax increases and increased contributions under this Bill, will give a further twist to the price spiral. To cope with this very serious situation the right hon. Gentleman has introduced the Bill. The £4 10s. pension is to be increased by 10s. next November with similar increases for other benefits. Since it was fixed, in October, 1967, the pension has lost purchasing power to the extent of 9s. What is to happen between now and November is anyone's guess. We shall have to wait and see, but it is not unreasonable to expect that the whole of this increase will have been wiped out even before it starts.

The increase in contributions is designed solely to restore the purchasing power of the pension. It is the price that the country is having to pay for the Government's inflationary policies.

Mr. Peter Archer (Rowley Regis and Tipton)

I am trying to understand the hon. Gentleman's argument. I agree that one antidote to inflation is to reduce social service benefits and contributions, but is that what he is suggesting? If not, what is his solution, and where does his argument lie?

Lord Balniel

It lies in the totally different philosophy of the two parties. We believe that the continuous and colossal increases in direct taxation are one of the major contributory causes of inflation. We do not, for instance, believe that devaluation was a desirable thing to achieve in our economy. The right hon. Gentleman describes it as being a giant stride towards Socialism. There is a difference of view between us. We believe that uncontrolled expansion of public expenditure, combined with colossal increases in taxation, is one of the major causes of inflation, and it is this more than anything else which is eroding the value of the pension.

I disagree with the Government's general economic policies. I disagree with the policies which have forced prices up so fast. I disagree with the increases in direct taxation. I disagree with the almost uncontrolled expansion of public expenditure. I disagree with the policies of inflation which have cut the value of the pension and necessitated the Bill. I even disagree with some of the social priorities which the right hon. Gentleman has selected in this social service field.

However, within the context of the position in which the Secretary of State now finds himself, and within the framework of inflation which should never have been created, I have some sympathy with some part of the financing arrangements of the Bill. The Minister was trapped. Should he throw a greater proportion of the burden on the taxpayer? Rightly, he rejected this, although with a qualification which I shall come to. Should he throw a greater proportion of the burden on the employer and on industry? Rightly, in the present circumstances, he rejected this. Should he throw a greater proportion on the flat-rate stamp? Rightly, he rejected this.

Instead, the Secretary of State took the graduated contribution of the scheme of my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) and vastly extended it. He has taken the graduated contribution on earnings between £18 and £30—½ per cent. of earnings—and blown it up to 3¼ per cent. Unlike the Boyd-Carpenter scheme, if I may properly refer to it as such, the Secretary of State refuses to allow contracting out. Yet it is this feature which is so crucially important to the expansion of the genuinely savingscreating private occupational schemes.

Having taken this decision, what a profound embarrassment it was for the Secretary of State, because it was he who led the chorus and stumped around from platform to platform bellowing about a "Tory swindle". No one did more than the Secretary of State for Social Services to orchestrate the opposition to this scheme. Now we understand what terrible anguish the right hon. Gentleman must have been in for the past two months as he thrashed around to escape from the predicament into which he had got himself. We can imagine the scene; "How can I fool them? Heavens, how can I fool them?" he cried out.

The Secretary of State for Social Services (Mr. Richard Crossman)

Fool whom?

Lord Balniel

The British public. So the right hon. Gentleman comes up with a plausible little slogan, a meretricious little scheme. He says, "I will inflation-proof the Boyd-Carpenter pension for those who are still contracted in". My right hon. Friend could have done that.

Mr. Crossman

All the pension "bricks" are included in our proposed inflation-proofing, for those contracted out as well as those contracted in, because everyone, whether they are in or out, can earn pension from the graduated scheme. It is not only those contracted out who have pension rights through the scheme.

Lord Balniel

The right hon. Gentleman is inflation-proofing the Boyd-Carpenter pension in so far as it applies to those who are not contracted out. My right hon. Friend could have done this.

Mr. Crossman

Why did he not?

Lord Balniel

I will explain why. It must be very tempting to draw in money in return for a promissory note and leave it to one's successor to pay the cheque. It even sounds quite good. It removes the firm mathematical integrity of my right hon. Friend's scheme and puts a flexible politician's promise in its place. My right hon. Friend could have done it, but he did not. I have not even asked him why he did not, because I know. It is meretricious. It is false. It is bogus. It is the political arithmetic which I believe that Britain completely distrusts.

Also, the right hon. Gentleman is developing a scheme to draw in additional taxpayers' money to pay out to persons who, by very definition, are not in the greatest of need, at a time when he is doing nothing for the over-80s, nothing for the civilian disabled, nothing to eliminate the problem of child poverty. The lust for political popularity has overcome what I would regard as being a more proper selection of social priority.

Let the House be in no doubt. This is a last-minute expedient to save the embarrassment of the right hon. Gentleman. Of course it is a last-minute expedient. In paragraphs 20 and 62 of his own White Paper, which was published as recently as January of this year, the Secretary of State specifically rejected this inflation-proofing. Paragraph 20 says: It would not be right to provide higher graduated pensions only to those who have not been contracted out. These are very technical matters, and we shall follow them up in Committee. But the principle is clear. An employer was given a clear option on certain clearly defined terms. If the Minister now proposes retrospectively to alter these terms to the detriment of the employees who have contracted out, he is doing something which harms the interests of private occupational schemes and the employees who have contracted out. He has decided retrospectively, at the taxpayers' expense, to provide a subsidy to those in the State scheme at the expense of those who have contracted out.

We should note these warning words of the Government Actuary as set out in paragraph 5: It is proposed, however, to provide for further Exchequer payments of £10 million in 1969–70 and £45 million in each later year in addition to the normal supplements to the flat-rate contributions. These additional sums will be sufficient to maintain the Exchequer proportion of the total income scheme at about its present level over the next two or three years. It is a very short-term forecast indeed which the Government Actuary makes.

The Government must decide whether they want to continue the growth of genuine savings through occupational schemes or whether they do not. If they want to encourage occupational schemes, and if they deny equality of treatment to those contracted out of the present graduated scheme, they are raising real doubts whether any of the terms for abatement under their 1972 scheme will be worth the paper on which it is written. This is not a very good start to the 1972 scheme. Indeed, if one takes the Secretary of State at his word and assumes that those who are contracted out will be denied equality of treatment, then these words in the Economist of 14th June are very relevant: This is not only grossly unfair on those who contracted out of the Boyd-Carpenter scheme under the original and honest prospectus (which Mr. Crossman is pleased to call a 'Tory swindle'). It is an open invitation to employers in future not to proceed with the expansion of private occupational schemes, but to move over to the non-savings-generating state hand-out scheme instead. The Treasury would then have to raise enormous sums by new taxation. No responsible Opposition could accept this retrospective breaking of a contract as binding upon themselves.

There are many other parts of the Bill—sickness benefit, unemployment benefit, industrial injuries—to which I can more conveniently return in Committee. I hope that by then we shall have the paper on short-term benefits promised for the spring. Even the most chronic pessimist would agree that we have arrived at high summer by now. I am particularly anxious to debate short-term benefits because I am convinced that there could be a wise and compassionate reassessment of social priorities here.

Many of us find it difficult to accept that help for the civilian disabled should be given such a low priority. We also question whether some of the benefits are not being abused. We question the illogicality of some of the taxation arrangements. I will not debate this now but will return to the main theme of my speech on the Bill.

It is necessary to restore the purchasing power of the pension. None of us can stand by and watch the standards of life of retired people fall steadily in the face of the worst inflation since 1951. If as a country we will a standard of life for our elderly people we must be prepared to pay for it. My doubts lie in the fact that there is almost total incomprehension on the Government benches of the importance of generating real savings through the private occupational pension schemes. Only if we now encourage private schemes with their genuine savings shall we secure a decent standard of life for future generations of old people. It is very easy and no doubt popular, if anyone is still gullible enough to believe the Government, to talk freely about inflation-proofing pensions. They are empty words, a mere expression of hope that our children will bale us out of the economic mismanagement of our affairs.

It is such an improvident approach. Let us instead concentrate the resources of the State on those who cannot help themselves—the elderly, the disabled, the mentally ill, the chronic sick and all those categories of people who are desperately in need of our help. The younger generation are able to stand on their own feet; let us encourage them to do so. Let us encourage them to make provision for themselves and their families through the media of saving and investment, and, in particular, encourage them to provide for their old age through private occupational pensions.

7.53 p.m.

Mr. Kenneth Marks (Manchester, Gorton)

Like the noble Lord the Member for Hertford (Lord Balniel), I want to congratulate the Minister of State on his analysis of the problems and the way in which the Bill will tackle some of them, building as it is on the present inadequate system. His ability to make the situation clear was only matched by the noble Lord's ability to confuse the issues as much as possible. The purpose of the Bill is to enable an increase in retirement pensions to take place and to find the means of providing money for this.

It is significant that the noble Lord did not reply to my hon. Friend's question whether he would keep the same kind of pension or whether he would alter it, whether he would adopt this system of graduated contributions or some other course. The purpose of the increase, according to the White Paper, is to restore to flat-rate retirement pensions and other insurance benefits the value lost because of the rise in prices since the last increase in 1967. The proposed increase does that, but only just.

Since we cannot use the October, 1967, to October, 1969, figures, as they are not yet available, I suppose that the figures taken into account were those from April, 1967, when the proposals for the October, 1967, increase were considered, and April 1969. During this period of two years the index of retail prices went up by 10.2 per cent. The pension will go up by 10.9 per cent. for couples and 11.1 per cent. for single persons. I accept that the arrangements under the Bill are temporary. They amend the 1961 scheme which is inadequate and we must wait for the new scheme to do its job properly.

It will be noted that some hon. Members opposite did not wish to increase pensions since they decline to give a Second Reading to the Bill. Are they suggesting that the kind of proposals they envisage could be worked out in time to give pensioners an increase this Autumn?

To return to the amount of the pension, the Government are right to restore to the pension the value lost by price increases. Is this enough? During the period when prices went up by 10.2 per cent. and pensions are to go up by 11 per cent. approximately, the average earnings went up by 16½ per cent. Ought not the pension to be tied to earnings rather than prices? Why should not pensioners share, as they have done in some of the previous pension rises since 1964, in the improving standard of life?

To be fair to the workers who have had these rises it must be said that these are gross earnings. National insurance contributions, income tax, family allowances all have to be considered. There should be some work done to find out the relationship between prices net incomes and pensions.

I turn to a matter about which there is a great deal of confusion. We will have the usual problem in November when pensioners on supplementary benefit find that they are not 10s. better off but only 5s., since they had a 5s. rise last year when there was no increase in the standard pension rate. There is so much confusion and misrepresentation on this that we should get the record straight.

From May, 1963, under the Conservative Government, until this Government came in, there were no improvements either in national assistance rates or retirement pension rates. The national assistance pension then stood at £3 3s. 6d. and the retirement pension at £3 7s. 6d. In March, 1965, the Government increased both pensions by 12s. 6d. making national assistance £3 16s. and retirement pension £4. In November, 1966, those pensioners on national assistance started to receive supplementary pensions, most of them had an increase of 16s. to £4 10s. That year there was no increase in the standard rate of pension.

In October, 1967, supplementary pensions were raised by 5s. to £4 15s. and standard pensions by 10s. to £4 10s. In October, 1968, supplementary pensions went up by 6s. to £5 1s. and the standard pension was not increased. Under the Bill, the supplementary pension will be raised, from 1969, by 5s. to £5 6s. and the standard pension by 10s. to £5. Since the Government came in those on supplementary benefits have had an increase every year and now receive 70 per cent. more than they did in 1964.

This is considerably greater than any price rises in that period. That standard rate pensioners have had a rise every two years and now receive 49 per cent. more than they did in 1964. This ought to be explained to the old people, concerned about supplementary benefits and pensions. The Press, radio and television should help with this explanation now and at the time of the pension increase.

Mr. Ennals

The House will be grateful to my hon. Friend for giving us this record. Would he recognise that there is also the 10s. long-term addition to which he has not referred, but which was introduced in 1966?

Mr. Marks

I have included the longterm addition in my figure. Having pointed out the need for the explanation of this anomaly, it is time that the anomaly was done away with. The annual review which supplementary benefits receive ought to be applied to all benefits, whether sickness, retirement or any other benefit. The anomaly would be removed and it would be fair to all concerned if an annual review took place.

I know it may be said that it is administratively impossible, but I do not believe that. If supplementary benefits can be adjusted every year then so can other benefits. It may be argued that in some cases the rise will be very small. What may seem a very small rise in Whitehall is a very important rise to people receiving benefits of this kind. I urge the Minister to consider this urgently, not only in this Bill but in the coming Bill for the 1972 scheme.

8.0 p.m.

Mr. John Boyd-Carpenter (Kingston-upon-Thames)

The Minister of State moved the Second Reading in a speech whose clarity has been very rightly commended, and also with a lack of enthusiasm for the Bill whose manifest quality is also very much to his credit. I want to discuss mainly the curious devices which the Bill proposes about the collection of contributions. However, before doing so I want to make a brief comment on the benefit side.

It is completely misleading to say what will be the percentage increase in real terms of the benefits when they come into force in November. Nobody knows. All we do know is that there is no indication in the economy of a slowing-down in the increasing level of prices. It does not lie with the Minister of State or any of us to say that when these increases are paid they will represent any particular percentage increase in real terms over previous levels.

None the less, all of us obviously welcome an increase. In an age of inflation and strong trade unions it is inevitable that the older generation on fixed incomes should find their position being eroded. There is not an hon. Member in the House who does not know, in his constituency, and from his personal acquaintances, of innumerable cases of people who thought when they retired that they would enjoy a comfortable standard of life and have seen the whole fixed income support of their life being eroded. Any sensible and sensitive person welcomes an attempt to do something to restore the balance between the working generation, which though it has not done all that well during the last year or two, did very well before that, and the retired generation, which we all know has suffered considerably and is suffering.

Therefore, I very much welcome the decision to increase benefits generally. I have reservations even about some of these. I fully share the disappointment of my noble Friend the Member for Hert- ford (Lord Balniel) that the Government have not taken this opportunity to deal with the weakest point in the present system, the treatment of what the Department in that bleak phraseology calls the longterm sick—the disabled, the people, perhaps young, perhaps middle-aged, who will never work again. Even if they are entitled to it, which many are not, the standard rate of sickness benefit may be adequate for a short period of sickness, but, plainly, it is inadequate for a life time.

I find it increasingly difficult to reconcile the differential in treatment between those who suffered a disability in industry at work and those who perhaps suffered it on the way to work. The distinctions become very narrow in the light of some of the decided cases. One gets the cover of the Industrial Injuries Act if one is injured while on the way to work in one's employer's transport. If one uses one's own transport to go over the same route to the same place, one does not get any of the cover in the event of an accident.

While I always uphold the doctrines of complete priority for war pensions, since those hurt in the service of their country in war are entitled to special treatment, in civil life the very sharp distinction between the man injured at work and the man injured outside work and the lack of any proper disability or constant attendance provision for the latter are very serious.

It is not a very serious issue financially. The Minister of State gave figures for the long-term sick of about 80,000. I think that there are substantially more than that, but in any event the number is not very large, and the amounts concerned are not very large. It is a great pity that the Government, who are making some changes in the benefit side of the scheme in the Bill, have not dealt with this matter.

Mr. Ennals

To set the record straight, the figure of 80,000 is simply that of women. The total figure is much larger, at 320,000, of those who have been sick for more than a year. I do not disagree with the right hon. Gentleman, but I want to put the record straight.

Mr. Boyd-Carpenter

My guess is that the hon. Gentleman's 320,000 includes some who are not in this permanent disability group and that there are quite a number who have a long illness, but who will return to work, and that it excludes some because they are not entitled to sickness benefit. I judge that it is a few hundred thousand. I want to register my great disappointment that the Government have decided to do nothing about this matter.

The other point was touched on by the hon. Member for Manchester, Gorton (Mr. Marks). Next November, those of the retirement pensioners who most need it will get the smallest increase. I know the argument. It is said that they got their sapplemenary pension increase a little time ago, that this is now made up and that they will now be in the same position as the others. But it will be difficult to explain to them that, whereas the better off pensioner gets 10s. in November, the poorest: of all get 5s.

There is a remarkable change in this respect in the attitude of the Secretary of State. I see that he has now flitted out of the Chamber again. On 28th January, 1958, he wrote an article in the Daily Mirror. That was his excellent habit in those days, because it provided his political opponents with unlimited supplies of gratuitous ammunition. He made a reference not to the 1959 Act, but to the 1957 Act, then about to come into operation, and he used again what appears to be a Wykehamist expression, the word "swindle". Writing of the 1957 Act, he said: I called it a swindle—first, because it deprived the smoker of a quarter of his 10s. increase"— that was the abolition of the tobacco vouchers, which no one has ever shown the slightest intention of restoring— and, secondly, because it made sure that those receiving National Assistance, whose need is greatest, get the smallest increase of all. That was the right hon. Gentleman in 1958 who, in 1969, is doing precisely that.

Let me come now to the contributions. The House should be clear, first, what it is that the right hon. Gentleman is doing about the contributions. As my noble Friend said, the whole exercise has been botched. It was an outrage that the Chancellor of the Exchequer should announce the increased benefits in his Budget speech and for hon. Members to be unable for two months to elicit any information about the way in which it was proposed to raise the money. It was a cheap exercise in electioneering which reflected seriously on the integrity of the Chancellor and on the weakness of the Secretary of State for allowing him to do any such thing.

It was also wrong because it made it impossible, in the absence of this information, to judge the increase of S.E.T. with the fact that, in the case of certain men, the national insurance contribution paid by the employer through the same stamp would go up by 7s. 7d. The House was asked to judge these two transactions separately, and that comes very near to misleading the House on a serious financial matter. It is of some significance, if one adds these up, that in the case of some employers they will have to find about £4 a week before they begin paying a penny in wages to the men whom they employ. The effect on the costs of industry at a time when we are all exhorted to be highly competitive plainly must be disastrous. They are all costs which we know will be passed on as the Secretary of State told us in an earlier debate, in higher prices, in less competitive British industry and in a more inflationary economy.

I feel a certain amount of amusement at the right hon. Gentleman's change of thought about what he used to call "the Tory swindle". I very much admired the Minister of State's gallant diversionary effort. He suggested that the scheme which came into force in 1961 had been called a swindle because of the simple fact that, when a Government are hell-bent on inflation, all contracts expressed in terms of money are liable to be eroded. That is a fairly simple proposition. However, at that time we did not have a 'Government hell-bent on inflation, and that was not the gravamen of the right hon. Gentleman's charge.

The right hon. Gentleman's charge was simple, and it was supported in innumerable Parliamentary Questions. He said that it was a swindle to take money under a graduated scheme, contributions to which would be used to pay flat-rate benefits, when it was not intended to pay any substantial graduated pensions for years to come. That was the essence of the charge which the right hon. Gentleman up and down the country and tediously in the House repeated again and again. But that is precisely what the right hon. Gentleman and the Minister of State are seeking to do with this Bill.

It is made the more amusing when one recalls the election manifesto, "Time for Decision"—that itself has a touch of irony at the moment—which right hon. and hon. Gentlemen opposite put out at the last election. It says, on page 15: We shall within the lifetime of the next Parliament prepare and bring forward a genuine earnings-related, contributory pension scheme to replace the present Tory swindle. If they had said what they really intended to do, it would have read: We propose to operate the present Tory swindle for three and a half years and then greatly to increase its scope and draw in far more money under it. That is what they have done, and it is an interesting indication of their complete lack of sincerity in the charges which the right hon. Gentleman put forward.

Let us be clear what the Government are doing. They are taking £261 million extra next year and a little more the year after out of graduated contributions, and that is £261 million of the additional £348 million. In return, they are giving an extra liability under the 1959 Act for pensions under its properly devised formula. So far, that is not unreasonable. But, on top of it, they are what they call "inflation-proofing" it. They are not providing a penny by way of provision for that inflation-proofing. They are giving simply a paper promise, a liability imposed upon subsequent generations in return for contributions which they now take. It is that which makes the whole scheme financially disreputable.

My noble Friend said that the Government Actuary has reported only on the next three years. Perhaps we can be told why he has reported only for a period of three years—a period during which practically none of the additional graduated pension liabilities now being increased will mature. Was the Government Actuary told to confine his report to the next three years, or did he find himself unable to give any reliable report for any longer period in respect of a scheme of this sort? I would like a plain answer to that. Was the restriction of the Government Actuary's report to three years a result of his own initiative or the result of a direction given him by the Government?

The inflation-proofing of the basic flat-rate pension is simply a dramatisation of what has happened since the beginning of the scheme. Under the Conservatives, from 1951 to 1964, there was an increase in real terms of the main body of the benefits of 50 per cent. In respect of certain benefits, it was 100 per cent. That represents a great deal more than mere inflation-proofing, and the Bill is an indication that that is also the policy of this Government.

The inflation-proofing of the basic provisions is no more than window dressing. It becomes a more dubious proposition when one gets beyond the basic flat-rate pension into pensions related to higher earnings. The effect is that the more that a man earns in life and the bigger pension he has earned, the bigger subsidy he will get by way of inflation-proofing from his fellow countrymen when he retires. To him that hath shall be given appears to be the doctrine of the Government rather than the old Socialist tag, "To each according to his needs." This is a commitment which is completely open-ended financially. If we get another Government who pursue inflationary policies, the figures involved are quite unlimited and not a penny is being put by to cover that wholly unlimited liability. That really is profligate finance.

For the same reason, it seems quite wrong to bring in the Exchequer contribution into the graduated part of the present scheme. The essence of that scheme was that it paid for itself and that the Exchequer did not contribute. Now we have an addition in the first year of £45 million out of national taxation by way of subsidy to those who ex hypothesi, are at the better end of the earnings scale. That cannot be right at a time when the public expenditure situation is such that the Government have gone back on all their principles; for example, in respect of health service charges, to claw back £3 million on an issue on which the Prime Minister once had the courage to resign. Again, that £45 million is being put in by way of Exchequer contribution into a scheme which was designed to do without it.

What will be the effect on occupational schemes? One of the proclaimed purposes and, if I may be allowed to say so, one of the successes of the 1959 Act scheme was to stimulate the provision of private schemes. Private schemes have three great merits. They represent real savings at a time when real savings are imperatively demanded by our economic situation. They are tailored to the needs of particular workers in particular trades, and they make for a common loyalty of feeling between all levels and all ranks in great industries. They have flourished and grown.

Lest there be any misunderstanding, I should declare that I do not have an interest here. The House may know that I am chairman of an insurance company, but that company does not deal in these matters.

I am sure that great damage will be done by these proposals to private occupational schemes. There will be no complete contracting-out. There will be partial contracting-out or none. Everyone will be either partly in the scheme or wholly in the scheme, but no one will be wholly contracted-out. The Minister of State cannot say that at present no one is contracted-out. About 4 or 5 million are contracted-out of pensions under the graduated scheme and contribute only to the totally different system of graduated sickness and unemployment benefits. In future, they will all be in this scheme. I doubt whether many firms will think it worth the trouble administratively to run their own schemes and to undertake the work of operating the Government graduated scheme.

The introduction of inflation-proofing and a Government subsidy alters the whole basis on which a decision to contract out was taken. If firms continue to contract-out and run their own schemes, may not they get into serious trouble with their workers who may now look upon the state scheme as much more attractive? If they cancel their contracting-out certificate, may not many of them also decide to go no further with their occupational schemes? There is certainly no incentive now to any employer either to start a new scheme or to expand an existing one.

During the debate on the White Paper I ventured to warn those who were then negotiating with the right hon. Gentleman about contracting-out that those who supped with him would do well to equip themselves with a long spoon. The Minister of State somewhat resented that remark, but the subsequent actions by the Government, which, whatever else their effect may be, are and must be calculated to damage the private schemes, are a vivid confirmation of what I said then. Administrative complications immediately occur. There will be additional cost and contributions on both sides, and the inflation-proofing and Exchequer subsidy alter the whole basis.

What is to happen to the Civil Service pension scheme? As the House knows, the Civil Service excellent non-contributory scheme is contracted-out—that shows the good sense of those who manage it. But what will happen now that civil servants are to be brought partly within the State scheme and are to earn graduated pensions? Will the Minister tell us whether part of the non-contributory pension of civil servants, which is part of their terms of service, is liable to be abated in those circumstances?

If this is not so it may well happen that, taken together, the two pensions of a civil servant will exceed the retiring salary, which is a situation which no sensible administrator wants to see. Because a non-contributory pension is an essential condition of service of the Civil Service, I warn the Government that they will be in for serious trouble if they tamper with it.

As I hope I have made clear, I regard the methods by which these welcome increases in benefit are being financed as dangerous and unsound. One can see how it all happened. One can see that the right hon. Gentleman the Secretary of State, once given responsibility, realised that the 1959 Act scheme was sound, fair and sensible, and that it offered the only effective way of increasing benefits without imposing an excessive burden by way of contribution on the lower-paid worker.

The right hon. Gentleman came to that conclusion, but his attack on the 1961 Act made him a hostage to fortune. He did not dare to come to the Box—nor has he yet dared—and announce that he was simply taking up the Tory swindle. He hoped to gild it over with the gold leaf of dynamism or inflation-proofing. By so doing he has not only put the occupational schemes in difficulty, but has taken for his successors a considerable liability.

The pitiful and dangerous expedients to which the Government have been driven make me wish to repeat the suggestion, which I made in the debate on the White Paper on National Superannuation, that 25 years having elapsed since Beveridge reported, the scheme having run into real financial difficulties—and I beg the Minister to recognise that I understand the real difficulties faced by him and his colleagues—this is surely the time for another probing and full review into the whole scheme and its finances.

I do not mean that he should not go forward now with the increases; he must do so; but I suggest that, having got the scheme into this appalling mess, he should realise the necessity of having a thorough review. There are able men who are available to serve on that review, some of them former servants of the Department like Sir John Walley, who have enormous knowledge of this subject and could help. Why will not the Government, 25 years after Beveridge, in totally different circumstances, having seen when they recently considered the problem of the contributions and benefits what a mess the scheme was in, decide to have such a review?

I want to see these benefits in operation and I hope that the Bill will receive a Second Reading, but, in return, I hope that the Government will undertake to go as speedily as possible for a full-scale review and that, during the passage of the Bill, they will be prepared to look reasonably and helpfully at Amendments designed to make the contribution structure a little less crazy.

8.28 p.m.

Mr. Peter Archer (Rowley Regis and Tipton)

Throughout this debate I have been haunted by a feeling that I have been here before. I hope that it will not be thought disrespectful to any hon. or right hon. Member who has spoken earlier if I say that most of the questions raised tonight were fully ventilated in a similar debate two months ago. I am sure that the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) will recollect the point he raised this evening as to whether the Chancellor of the Exchequer was right to include the announcement of the increases in his Budget, or whether any purpose would have been served had he kept the retirement pensioners in suspense as to their fate in the Autumn until all the questions of cost and contributions had been worked out. All this was discussed at considerable length two months ago.

On that occasion I ventured to express to the House certain views as to the merits of the way in which the Chancellor had treated the matter, and as to the way in which it was now proposed to pay for the increases. I am not so enamoured of my own speeches that I believe in repeating them. When I came into the Chamber tonight it was not my intention to intervene. I was led to seek to intervene largely in consequence of certain remarks made by the hon. Member for Hertford (Lord Balniel) from the benches opposite.

The noble Lord discussed at some length the effects of inflation. Of course, I agree with him, as no doubt we all do, that if it were possible to control inflation it would be better than making use of any inflation proofing. But this is crying for the moon. It is something which has not been achieved under either a Conservative or a Labour Government. It does not ring true to suggest that inflation is a phenomenon only of the last two or three years.

The habit of looking through the pages of The Grocer so as to compare recent increases is not a practice which has been invented by right hon. or hon. Gentlemen opposite. I did it, not unsuccessfully, in 1964. The fact is that inflation is a fact of life; and there is no mystery as to the financing of the inflation proofing. Inflation is a sign of increased national prosperity, and it is from that increase that one would expect to finance the inflation-proofing.

I agree with my hon. Friend the Member for Manchester, Gorton (Mr. Marks) that, if I have any criticism of the scheme, I would like to have seen that index tied not to price increases but to wage increases. The least we can do for our retirement pensioners is to enable them, not merely to stay in the same place but to share in the national prosperity. However, that is a criticism which may well be rectified at a later stage. I am not suggesting that at this stage the Bill should be seriously opposed because of that factor.

Having listened very carefully to the arguments of the noble Lord, who unhappily is not in his place, about the effect of S.E.T. and the other burdens which he alleges are imposed upon industry, I wondered what was the relevance of all this to the Bill. I became increasingly sure that what he was proposing to say was that one antidote to inflation was to reduce contributions. It is true that increased contributions are inflationary, but presumably the relevance to this argument is that if one wants to avoid inflation one reduces the contributions.

I began to wonder whether this was seriously what the noble Lord was proposing. He was not suggesting any other method of paying for the increased benefits. Then at last it came. It came a little by a side wind, but what the noble Lord was saying was that he did not want the increased benefits. [HON. MEMBERS: "No."] Right hon. and hon. Gentlemen opposite say "No", but the words the noble Lord used were that in many cases these were benefits for people who did not need them.

Sir Brandon Rhys Williams (Kensington, South)

Graduated.

Mr. Archer

Graduated benefits, of course; the very benefits about which we are talking. I will willingly give way if I am being more than usually stupid.

Mr. Marcus Worsley (Chelsea)

I would not accuse the hon. Member as ungraciously as that. The point is that these are flat-rate increases in relation to benefit, graduated in relation to contribution.

Mr. Archer

Of course I am sorry, but I still do not understand. Perhaps I have mistaken the argument of the noble Lord. What the noble Lord was suggesting was that many of these increases were going to people who did not need them. Those were his very words. Presumably the suggestion was that in many cases these increases would not have taken place—

Sir B. Rhys Williams

I believe I can explain the dilemma in which the hon. Member finds himself. I have with me a reply to a Written Question to the Secretary of State for Social Services which I received shortly before the debate. The Bill increases flat-rate benefits and also introduces graduated contributions which will earn graduated benefits in due course. The benefits will rise in due course to £25 million a year, which will be given to the people with the least need.

Mr. Archer

If the argument of the noble Lord was directed specifically to the "bricks" which will be earned in the future for the purpose of the graduated benefits, then even then, as I understand his argument, it is open to the objection which I was about to urge against it. But if this is basically what is between us, if what is being suggested is that the graduated contributions which produce graduated benefits are undesirable because those who during their working lives have earned the most will be the people who will benefit the most, this is a matter which we have debated at considerable length on many previous occasions.

The argument in favour of graduated contributions is that it is hard that in old age there should be a considerable fall in income and, therefore, it is intended to cushion those with even relatively high earnings against that fall in income by ensuring that they have relatively high pensions. I am sure that hon. Gentlemen opposite are not unaware of the arguments used in that debate.

I understood the hon. Member for Hertford to say that we should not be called upon to pay contributions for benefits which in many cases go to people who do not need them. If he was accepting the flat-rate benefits, I confess that basically what I wanted to direct against him has considerably less force. But, as I understood it, that was not his point. The noble Lord's general point was that increased contributions are inflationary and that the way to avoid increased contributions is to ensure that we do not have increased benefits. Therefore, we must direct increased benefits only against those who are shown to need them. I understood that that was meant by the words used by the noble Lord when he said that there was a basic dispute between the Opposition and this side of the House on political philosophy. There certainly is that dispute, which I hope, from this side at least, will never be closed.

What is really being suggested is that social security benefits are basically for people who can be shown to need them. They are for the poor. They really ought to be given only on some kind of means test, whether applied during a person's working life to ascertain contributions, or at the end of his life to ascertain whether some kind of supplementary benefit should be given. On any showing, it is the philosophy of the means test, and certainly that is a fundamental difference between the two sides of this House.

I have never understood how hon. Gentlemen opposite can happily advocate a scheme so basically opposed to the philosophy of incentives. There can be no greater disincentive to working hard and saving hard during the whole of a man's working life than to be told that at the end of it his income will depend on some form of means test. I have never understood how hon. Gentlemen opposite, who are so concerned about incentives when directed to high salary earners and to rising young executives, can be so indifferent to them at the other end of the social scale.

If we want increased benefits, of course they must be paid for. If we do not, we should say so quite frankly. If we want them, there can be no objection to a method of financing them which turns on the ability to pay, upon earnings-related contributions. The objection to the scheme introduced by the right hon. Member for Kingston-upon-Thames, and the reason why it was called a swindle, was not because earnings-related contributions were levied to pay flat-rate benefits but because the flat-rate benefits were existing flat-rate benefits, not increased benefits. They were designed to close an existing gap which should have been closed by the Exchequer.

Since no one else has done so, I should like to congratulate my hon. Friend's Ministry on the compassion which has been shown in the Bill for a number of people whose needs previously were concealed by the smallness of their numbers. I refer to the many pensioners who were able and willing to augment their earnings, although possibly by only a few hours a day, and whose income was limited by the earnings rule. Incidentally, I entirely agree with the right hon. Gentleman that something might have been done for the long-term sick. I hope that my hon. Friend's Department will keep this problem very much in mind, even though there may have been good reasons why it could not be done in the Bill.

I congratulate my hon. Friend, too, on doing something for the families of the handicapped who, to all their other worries, have the added financial worry of wondering how they will meet the liabilities on death. I recently had occasion to send to my hon. Friend's Department one of the most pathetic letters that I have ever received. One paragraph of that letter read: … No insurance company will do business with mentally handicapped people as they are supposed to be a bad risk. Please tell us how an ordinary working man is supposed to give a mentally handicapped adult a decent burial or even bury one at all when there is no coverage for death, at least none that we can find. Some of us are worrying what will happen when our child dies, as most of us are unable to save for this, as our husbands are just ordinary factory workers. My own son is 23 years of age, 6 ft. tall and nearly 14 stone in weight, so you will see it takes me all my time to feed and clothe him. There will be perhaps not a large number of families but still a substantial number who will have good reason to congratulate my hon. Friend's Department on some at least of the provisions of the Bill, and hon. Members on this side of the House will not complain when, to assist people in that position, an additional contribution is levied.

8.41 p.m.

Sir Brandon Rhys Williams (Kensington, South)

I believe that the amiable, highly intelligent, and probing nature of our debate is entirely appropriate to a discussion of the system of national insurance, which arises from the fundamental desire of people living in a civilised community such as ours to extend charity by means of the State to all members of our society, and I hope that national insurance can eventually become a subject in which there is no party acrimony or partisan dispute.

I regret, however, that this preliminary canter, which is how I suppose we might describe this Bill, for the great new Measure which we understand is to be introduced in the autumn should show virtually all the faults which were detected in the White Paper. It shows that the Government have learned nothing from the suggestions made about the way in which they might improve their thinking on this subject.

I am sure that all hon. Members on this side of the House welcome the increase for national insurance beneficiaries. I think that we all welcome, too, the small relaxation of the earnings rule. This is, indeed, a great blessing for some pensioners. We regret the partial nature of the increase for those who are obliged to seek supplementary benefits. I should have welcomed their being kept in line with those for the beneficiaries of national insurance generally, and that they should not have been obliged to take only half-pay on this occasion. I understand the arguments, but I think it is indicative of the tangle into which the Government have got themselves that they are seeking, as I have said, and I shall have to say many times again, to give the greatest benefits to those with the least need, and then find themselves short of money to help those who have the greatest need.

It is easy to spend money on national benefits of all kinds. What is difficult, and what should concern us, and I think does concern most of us tonight, is how to discriminate in the way we spend the money, and how to find the money that we intend to spend. These really are the philosophical questions at the back of the whole problem of the Welfare State, and I think that this Second Reading debate is an appropriate occasion for going as deeply as we may into this subject.

The trouble with discussing a subject of this nature in a virtually empty House is not that the whole country is not enormously interested, because national insurance will affect every man, woman and child; and it is not that: right hon. and hon. Members are not interested in the subject. It is that in the course of time they have learned that the technicalities are such that it is impossible to make a serious contribution without either being misunderstood or else talking at in- ordinate length. I think that this dilemma affects us all.

Mr. Speaker in his wisdom did not call the reasoned Amendment which I and a group of my right hon. and hon. Friends set down. I fully understand his reasons, and do not challenge them in any way, but I should like to read the Amendment, because it condenses into as few words as possible what needs to be said about the Bill. The Amendment reads: That this House declines to give a Second Reading to a Bill which seeks to reform National Insurance without reference to other systems for the re-distribution of income, in particular the income tax; which therefore would add still more to the burden of taxation on individuals and industry without resolving any of the basic problems impeding the effective functioning of National Insurance; which would discourage the creation of wealth by laying heavy extra impositions upon marginal earnings; which requires an increase of £45 million a year in the Exchequer subsidy to the National Insurance Fund and thereby places a further burden indirectly on to taxpayers; and which fails to concentrate help on those now living in the most acute need, particularly the disabled and the children in families with low incomes, but on the contrary would require the Exchequer to contribute to a scheme under which the highest benefits become payable selectively to those who have enjoyed the highest earnings and are not in need. I feel that I owe it to critics of that Motion to explain the reasoning which has gone into it, so far as it is considerate to take up the time of the House in doing so. My feeling is that we need a totally new approach to the whole problem of redistribution of income in our society. The total expenditure on the social services and housing has reached £8,700 million a year. I suppose it is now infinitely the largest individual item of expenditure in the Government's Budget.

Let us look at the money-raising systems we employ. There are the national insurance flat-rate contribution, the national insurance graduated contribution, income tax, surtax and rates; and let there not be forgotten the quite considerable item, the loss of benefit through the operation of the various means tests. Those, in effect, are all money-raising systems. Then there are the distributive systems: the national insurance fiat-rate benefits, national insurance graduated benefits, supplementary benefits, family allowances, food subsidies, housing, education, health and, of course, the enormous system of income tax allowances, what I have described as the forgotten Welfare State which in some ways is perhaps the costliest Welfare State we operate. I would like to revert to that.

My thought is that we shall never be able to reform any single one of those separately. If we are to make sense of the redistribution of income in Britain we must look at the entire picture and concentrate on what we are trying to achieve and on the obsolete—in some cases, totally obsolete—ways in which we are seeking to do it at the moment. This is partly a philosophical exercise, for we must ask ourselves what we aim to achieve; and it is partly a business-efficiency exercise in which we must ask ourselves what is the way to achieve it.

I want to improve the redistributive system so that we do, in fact, solve the problem of the disabled. We must solve the problem of children in low income families. Incidentally, no one has mentioned the wage stop. This is one of the crying examples of the failure of our present systems to deal with precisely those problems that are recognised by the public to be the most acute. We must deal with the problem of single pensioners who have even more serious needs than pensioners still able to live together and, to some extent, to meet each other's needs. Widows come high on any list drawn up by any member of the public as having priority for reform; and, of course, the chronic sick.

One could dispute as to who one would put on such a list and how one would draw up one's priorities; but I do not believe anybody would consider that State benefits should flow first and foremost to those who have enjoyed the highest incomes during their working lives and who are in no need. The Government have got themselves into a corner over this for reasons into which time forbids me to go but which are associated with quite ulterior motives connected with policy some ten or 15 years ago in which they hoped totally to nationalise the capital market and get their hands on securities which would give them the power to achieve the back-stairs nationalisation of scores of great companies. But it is false thinking in this day and age to pursue the idea of grant- ing graduated benefits in the way the Government are doing.

Mr. Ennals

Is the hon. Gentleman applying his criticism to the scheme introduced by the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) or to the scheme introduced by the Bill?

Sir B. Rhys Williams

The difference between the scheme introduced by the right hon. Member for Kingston-upon-Thames and the scheme sought to be introduced by the Bill is that the former is arithmetically watertight—[interruption.] It may be a hard scheme which takes no note of changes in the value of money and which gives very small, if any, interest at compound interest rates, but it is arithmetically predictable and absolutely honest. The system which the Government seek to introduce is completely unpredictable. No one can say what rates of benefit he may hope to get in five or ten years. How can anybody contract out of that?

Gradually the Government will find—and whether they still have this express intention or not is immaterial—that they have taken over the private sector. There will be no contracting out because no one can face the commitment of contracting out of a system in which they cannot predict their obligations if they do. The Government will say, "There is a national economic emergency which makes it impossible for us to do all the things that we want to do in national insurance". But it is national inefficiency, not the economic emergency, which is preventing us from achieving the desired result.

I wish to say briefly where I believe we should get the money to pay for increased benefits. As proposed by the Government, the extra money is to be raised by an increase in marginal rates of taxation. It does not need even A-level economics to know that this is likely to reduce the incentive to create wealth. It is highly undesirable to raise the deductions by the State from people's marginal increases in earnings. But that is what is being done.

Let us consider the enormous world of income tax allowances which has grown up steadily since William Pitt. What should income tax produce? Let us do some elementary sums. I suppose that income tax should be levied on income from employment, self-employment, profits and other types of income. Taking a stab at a round figure, the total sum liable for income tax is about £30,000 million. Even if we assume that the standard rate which we use is the reduced rate of 6s. 5d. instead of 8s. 3d., income tax could be expected to bring in about £9,000 million at least. But it brings in only £4,350 million—or it did when the taxable income was about £30,000 million.

Where have all the millions gone? They have disappeared in the enormous and over-generous negative allowances which the old income tax system still provides. The income tax system has concealed within itself a secret Welfare State which benefits only the better off. It is as if it was a Welfare State like a roller blind which comes only part of the way down the window. The cost can be measured at £4,000 or £5,000 million. One may argue about the figure, but if we are looking for more money to pay for the redistribution of income and to carry out the public's wishes, those who seek will find it there.

In dealing with the paying-out side of national insurance and the Welfare State, we must recognise that there are two systems involved. The State is catering for two quite separate systems. If the Government are in a muddle, it is because they have confused them. One of them arises from the instinct of self-help—that is, the accumulation of capital, particularly for retirement. To cater for this, consciously or unconsciously the State has evolved a system for helping people to protect their savings. The Post Office has such a system. There is Government intervention in various fields, for instance, in the regulations governing occupational pension schemes whereby it is recognised that the Government have a public duty to protect people's savings. There is also the absolutely separate system, which has nothing to do with self-help but is concerned with the opposite, with charity, and that is the redistribution of income. In the one case, people put something aside for themselves, and in the other they put it aside for other people. If we once lose sight of the essential distinction between these two systems, we shall achieve nothing in the way of philosophical or business efficiency reform.

If the Government are concerned with the problem of promoting savings and helping people to look after themselves in retirement and preventing a sudden drop in income on retirement, they must be concerned with ways of protecting personal assets, particularly in the context of inflation. But if they are concerned with the problems of the standard of living of the destitute and people without resources, the Government must consider the problems arising from the cost of living of such people. I will give two brief examples of why it is vital to keep the two systems—welfare and saving—apart.

First, suppose there was a rise in the cost of living of 10s. a week, or £26 a year. For someone with an income of £520, that would be a rise of 5 per cent., but for someone on £2,600, the increase would be only 1 per cent. Under a universal scheme, how do we possibly cope with a 5 per cent. increase for one person and a 1 per cent. increase for another? The only way is to give each an increase of 10s. a week—the actual amount of the rise in the cost of living. In fact, we must deal with it by flat-rate improvements and not graduated ones. There is no scope for graduation when dealing with problems of redistribution to help the standard of living of particular categories of people.

My second example is this. Suppose the cost of living remained stationary for a time—this may seem farcical, but it might one day remain stationary or even decline—and at the same time, there was a steady increase in capital values. This also is possible. Those contracted into a Government scheme would be stuck, but those contracted out would enjoy bonuses all the time—or their employers would. Where is the justice of that? If one is to apply increases to the State sector where there is no change in the cost of living, one must do it according to the rate of interest, which goes on without relevance to the cost of living.

The first consequence of the Government's confusion over these two systems, welfare and savings, is that they are including this £45 million in their budget. In announcing his plans, the Secretary of State was extremely secretive and this information only came to light in response to a Question—even those who heard it might have missed the implications of this £45 million increase. The Government have decided, of course, that the Exchequer subsidy must be forced up somehow. They are not prepared to rest on the 18 per cent. of the flat-rate contributions which has existed up to now. They will insist on 18 per cent. of all contributions, including the graduated ones. No one has ever been able to explain, since the time of Lloyd George, what the Exchequer was doing in the national insurance system. It is even more difficult to explain what the Exchequer will be doing subsidising a graduated system.

An explanation which occurs to one is that they are looking for a subsidy which they can, in due course, use to beat the private sector with when they enter into competition with it. If the Government scheme can draw on a subsidy starting at £45 million and rising with the passage of time, no private sector scheme can hope to compete in the long run. This endorses what I am saying.

Coming back to my exegesis, there are three methods by which the State can pay out money to individuals. The first is on the basis of selectivity. This has been advocated by many people and is the best system in a transitional phase, when resources are genuinely extremely tight. But its disadvantages have been stated frequently, and they are final and convincing. There are the disincentive effects, the humiliating effect of the operation of the means test, the administrative cost and many other things. A general system of selective benefits introduced as a final solution to the problems of national insurance will get us nowhere.

Second, there is universality, whereby everyone is treated exactly the same. This is the system with which the Government should be concerned. I do not like to feel that the Government make favourites of any class of people according to their resources. In the eyes of the law and, I think, of the State, every citizen should be equal. I do not say that children, pensioners, widows, the disabled and the blind should all have precisely the same amount from the State; but in each of those categories everyone should receive the same, whatever his resources, because the State, in its paying-out activities, should know nothing of people's resources. I do not say that income tax should not do something to correct anomalies. Income tax is the means test to end all means tests. There should be no other.

The third method of paying out money is, of course, graduation. I find it surprising and shocking that the Government should have adopted graduation as their system. The Government have no place in operating graduated benefits. I know that this plain statement will be held up against me, and I will not try to develop this theme at the length which it deserves, but I should like to say something about the place at which the graduated system comes in.

It arises not from a man's relationship with the State but from his relationship with his work. In our relationships with our employers, it is obvious that in what we are able to earn—the same applies if we are self-employed—we are not all equal. If, therefore, we are to have a system of benefits graduated according to earnings, to income or anything else that arises out of the creation of wealth, the State should play no part in it. Graduated benefits should arise by virtue of a man's relationship primarily with his employer.

If we are dealing with graduated entitlements arising from employment and if we are particularly concerned, as we are tonight, with the question of pensions, the Government's only rôle should be to ensure that proper provision is made for retirement as a condition of employment. In other words, we reverse the rôle by which one either belongs to the State scheme or is occasionally able to contract out. To put it another way, we say that every employer should look after the pensions of his work people. Only those who cannot should contract in.

Good employers already do this, and the Government should ensure that good employers are not put at a disadvantage vis-à-vis employers who do not recognise this liability. Every employer should put some cash into his employee's hand at the end of each week and some cash into the hands of trustees for that employee's retirement. After all, this is only acknowledging that most of us live longer than we are able to work.

The Government would do well to look at the whole basis of occupational schemes and recognise that there is an obligaticn on employers to provide for the retirement of their workpeople. If employers do not wish to have private occupational schemes—there will be many who either cannot do so or are not prepared to do so—the State should establish a Post Office scheme or public pension fund trustee to provide a vehicle for peoples' savings arising from employment; and, of course, graduated according to their income.

Such an arm's length scheme, so to speak, should be a place where contributions fructify in the way that capital should fructify, which has nothing to do with the cost of living. Nor does it even have anything to do with the growth of the gross national product. Dynamise the bricks by all means, but not in relation to the cost of living or to need. It should be done remembering that those bricks are slices of capital, and capital should be treated as capital and not as units in the redistribution of income. Until the Government meditate a little longer on this concept and recognise the truth of it, they will never produce a workmanlike and arithmetically sound recommendation.

How should the Government approach universal benefits arising for everybody in the community by virtue of citizenship? We hear a lot, particularly in the American Press, about N.I.T.—negative income tax—and R.A.Y.N.—the "receive as you need" systems. I do not think that the Government are giving serious study to these concepts. They are normally left to amateurs and back benchers.

The one I particularly favour is P.P.T.C.—personal positive tax credits. All these things should be the subject of Government interest, but, unfortunately, when one seeks to interest the Government in them, one is told that such matters must wait until after, for example, the Finance Bill is out of the way.

The object of these benefits should be to provide what the late Sir Winston Churchill saw in his vision of the Welfare State: a floor through which nobody could fall in any circumstances but above which all would be free to rise as high as they liked. I consider that a basic structure of social security through which nobody can fall should be part of our society. It should be paid on a flat-rate basis which should be cost of living related, universal, flexible and paid for out of taxation.

There will be those who do not cotton on to this idea at once, but they should never forget the great value of an ancient slogan which dates back further than Marx and is probably older than Christianity: From each according to his capacity; to each according to his need.

9.7 p.m.

Mr. Frank Hooley (Sheffield, Heeley)

I will concentate on the question of the structure of the problem that faces us tonight and with which the Government are partially dealing in the Bill.

I wish, first, to pay tribute to my right hon. Friend and his Department for the lucidity of the White Paper. The facts are expressed clearly, and the introductory paragraphs on pages 3 and 4 set out extremely well the fundamental problem which the Government—any Government—face in providing pensions and other social security benefits and matching them in some way to the resources which are available from contributions or taxation.

The analysis of the change of structure in terms of the number of beneficiaries and people available to meet the load—to pay for the claims of the beneficiaries—is interesting and more carefully prepared than paragraphs 10 and 11, which deal, in a rather offhanded way, with the problem of finding the money.

The analysis of dealing with the problem of the balance between the working population and the non-working population—that is, the beneficiaries in terms of sickness, unemployment and retirement—is interesting and shows the seriousness of the problem. It demonstrates it in terms of the growth in numbers of pensioners. This is a phenomenon with which we are familiar. It is serious and is becoming increasingly serious for the reasons set out in those paragraphs; because people are retiring earlier and are living longer as a result of medical discoveries. For all these reasons the growth in the number of pensioners will pose a considerable problem in terms of financing the scheme. The sickness claims certainly are an uncovenanted phenomenon. I suppose we do not know whether this represents something that will go on for the next decade or so or something that is a passing phase. There certainly seems to have been some rather odd fluctuations between a fall of minus 2 per cent. in one year and an increase of plus 7 per cent. in the subsequent year, but generally the trend seems higher and it could go on.

Then there are the important aspects in paragraph 8 of the White Paper in respect of the fall in the number of the working population and, another phenomenon which very few have referred to, the effect of young people staying on longer in full-time education, which reduces the work force and will continue to do so. The structural problem as between the effective contributors and the number of beneficiaries is reasonably well dealt with and very cogently and clearly dealt with in the opening paragraphs of the White Paper, but if we look at the problem of contributions and finding the actual cash to meet all these claims, we see that it is virtually dismissed in a couple of very short paragraphs. I find this rather remarkable.

It is certainly true, and I agree with paragraph 10, that to meet this very radical change in structure as between contributors and beneficiaries we have got to the end of the road in terms of the flat-rate principle. At least we have got to the end of the road in the sense that we are prepared to go for another shilling but no more. I would burke at the shilling. In that sense I agree with paragraph 10. We have come to the end of the flat-rate idea because the balance now between the contributing work force and the beneficiaries has got completely out of line with what presumably it has been traditional in the past to regard as a level of benefits which we consider right. Therefore, paragraph 10 is perfectly fair.

In paragraph 11 the Government quite cavalierly and off-handedly, without any kind of reasoning or rationale, dismiss the notion that the whole gamut of taxpayers with a different percentage of contributions should in no way have it altered either up or down. I find this very odd. The Exchequer percentage according to Table 2 submitted by the Government Actuary is about 15 per cent., or, if we add an item called interest—it is not clear where it derives from—it is about 17 per cent. I have not been able to discover from any source what the rationale is for this figure. As far as I know it is merely a traditional Exchequer contribution which is not related in any way to the demands of beneficiaries, to the general gross national product, the general wealth of the country, or the size of the work force compared with the size of the nonworking population. There is no rationale for this figure. Yet it is simply being preserved within this scheme, and—what is more terrifying—I understand that it is to be preserved in the new scheme as though somehow it was a justifiable figure which had a rational basis.

I suspect that we have got into trouble because the Exchequer contribution has not been varied sufficiently to take into account this very drastic change in structure between the work force and the non-work force, or between the work force and the beneficiary population in terms of social security.

The 7 million people in retirement pay some form of indirect taxation. We have got out of line between contributions related to earnings and contributions related to general taxation. I echo the plea of the hon. Member for Kensington, South (Sir B. Rhys Williams) for a closer consideration of this question in terms of the whole structure of taxation rather than simply in terms of contribution on the insurance principle.

There is no insurance principle here. The present benefits are met as to about 15 per cent. from contributions paid during a working lifetime and as to 85 per cent. from the community at large. So the insurance principle is largely bogus. In 50 to 70 years' time there may be a genuine insurance principle under the new scheme. There will certainly be a much greater relationship between contributions and benefits under the new scheme than there has been, but in the nature of things there cannot be an insurance-based benefit scheme because the span of a working life—40 to 50 years—in relation to the period of retirement covers such varying levels of income and economic activity that there cannot be a direct relationship between contribution and benefit. This is demonstrated even in such superannuation schemes as university superannuation schemes, where there has been a direct notional link between contributions and eventual benefit. But this principle has broken down and most universities pay supplements to most academic staff.

It is disturbing that the Exchequer element in the equation is blithely taken for granted at 15 per cent. and will be taken for granted in the future, and there is no proper questioning whether this is a reasonable or relevant charge on the national taxation system within the total system of contribution.

Mr. Fortescue

Was it not foreseen in the original Beveridge Report that the Exchequer contribution would rise to 50 per cent. of the total by 1968—that is, 20 years after the introduction of the scheme'? Does not this strengthen the hon. Gentleman's argument?

Mr. Hooley

I did not know that. It strengthens the argument and makes sense. If the structure of the population changes in the way the White Paper describes, that phenomenon must arise. It is regrettable that the Government have not taken this into account.

I am disturbed also about the ceiling of £30 a week for graduated contribution. The sum of £30 a week is roughly £1,500 a year, and average industrial earnings are about £23, something like £1,200 a year. In so far as the graduated contribution is providing any distribution of the loan, it is providing the distribution within the middle range working population in favour of the poorer range working population. It is not asking for any very great contribution from the wealthy working population, because, unlike the income tax principle when someone pays little or nothing in the lower ranges of income but progressively more in the higher ranges, under this system a person pays most in the lower ranges of income and nothing at all once he gets beyond a certain threshold pitched very low—nothing at all, that is, on the extra earnings.

Come £30, a person pays his contribution, and after that he can earn another £100 a week and the liability stays the same. This is the reverse of the very sensible social principle of income tax. I am surprised that the £30 level should have been pitched so low, and so near to average industrial earnings so that there is only the gap between the £1,200 and £1,500 a year. This is something which will have to be watched when we come to the full scheme which this scheme is approaching, and make sure that there is an adequate contribution from the higher income ranges, and that the level at which the percentage impost stops is not kept too low. My feeling is that one and a half times average industrial earnings is probably too low in real terms and ought to be stepped up.

I very much welcome the proposal about the death grant. I have had this kind of problem in my constituency. The deep sense of bitterness and grievance caused by the present anomaly is to be removed, and I am very glad. I have serious reservations in that while the analysis at the beginning of the White Paper of the structural problem in the population between the work force and beneficiaries, is a good and lucid one, and a very important foundation for future thinking. I do not believe that the analysis in terms of contributions, particularly the ratio between Exchequer contributions, the contributions of the taxpayers as a whole, and the contributions from the working contributors, has been worked out sufficiently. The Government have simply accepted that the Exchequer will not pay any more. What worries me more than this is that my right hon. Friend's more elaborate calculation on the national superannuation scheme may come seriously adrift.

9.25 p.m.

Mr. John Pardoe (Cornwall, North)

I want to refer at the outset to the remarkable speech made by the hon. Member for Kensington, South (Sir B. Rhys Williams) which was a tremendous contribution to new thinking. Both his writings and his speeches are extremely welcome to all of us interested in the welfare state. I may say, with some modesty on my part, and I hope with due respect to him, that I sometimes have the feeling that if only the House would grant myself and the hon. Gentleman leave of absence to form a two-man Royal Commission on the subject, we could solve all the problems.

I will not follow him in all of his arguments, but I will develop one of his themes later. I have spoken earlier about one of the points he made, particularly about the factor of income tax allowance. I will deal primarily with the problem of pensions, but there are one or two earlier remarks I have to make.

I want to emphasise what has been said by Members on both sides about the problem of the civilian disabled. This is the first debate on social security matters that we have had since the death of that remarkable lady, Megan du Boisson and, as a vice-president of the Disablement Income Group, which she founded, I would like to pay tribute to her work. It will, I am sure, in due course receive its reward. Of course, we shall do it sometime, so why not make a start now? I am convinced that this has a much higher priority than we have been prepared to grant it.

Secondly, I ask the Government to consider the problem of the long-term addition and its relationship to the exceptional circumstances allowance. In observing the workings of the long term addition, which I welcomed when it was first introduced, I am beginning to wonder whether we were not wrong to make this flat-rate long-term addition of 10s. One of the reasons why it was introduced was to allow the officers of the Department more time to devote to investigating thoroughly, and giving additional help to cases of "real exceptional need"—those were the words used at the time. This has not happened in the majority of cases. All too often the long-term addition is being used by officers of the Department as a means of disregarding the real exceptional need of the bad cases.

It is extremely easy to sweep them under the carpet, because we are aware that the 10s. is there. I have very grave doubts about the workings of this and have entered into a considerable correspondence with the Chairman of the Supplementary Benefits Commission about it. Both myself and those who see this long term addition working, contrast the way in which officers of the Government seem determined to claw back a few shillings from a crippled old woman with the way in which they pursue a relatively tolerant attitude to those who maintain the fiction that they are unemployed when they are not.

My third point has to do with the problem of the Fund. We are at some disadvantage here because the last quinquennial review was up to 31st March, 1964. We have interim reports for the 1967 Act and for the present Act.

The new quinquennial review may well be with us in the autumn. It is due then. The trends apparent in the last review have now been confirmed in two subsequent interim reports by the Government Actuary, and we have heard again from the Minister of State that the increase in sickness absenteeism and the trend towards earlier retirement are major factors in the deficits which have grown in the fund.

The Minister of State gave some interesting figures of the trends in sickness benefit. In the 1950s there was no obvious trend, and that is why it was impossible to see what was likely to happen. Sickness absenteeism went up and down according to major epidemics. Since 1960 there has been a definite upward trend, rising from 274.9 million working days lost in 1960 to 308 million days lost in 1968. The high point was 311 million in 1966, but although we seem to have reached some sort of plateau, there is no guarantee that it will last.

Although the Minister of State gave detailed figures of the breakdown within the overall figures, it would be interesting to know the breakdown in relation to the absenteeism of men and women. The reason why I ask that is that in the last quinquennial review on the fund there was a substantial difference between the average number of weeks of sickness per insured man and per insured married woman, as one would expect. It has occurred to me that one of the factors in the total increase that we have seen in the 1960s in the number of working days lost may be the increased amount of days being worked by married women. I do not know whether that is so, and perhaps we shall get the figures later in the debate.

I have some sympathy with the reasoned Amendment, which has not been called. I agree with many of its points. In previous debates, I have made clear my difference with the Government and their philosophy on pensions. I maintain that the Government are now in a pension pickle because they have ignored those warnings.

I have just as great differences with the official view of the Conservative Party, which the noble Lord spelt out again at the outset of the debate. I believe that they were woefully led astray by the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) in the late 1950s, and they have rued that day ever since.

As I see it, the Government defend their approach to the Bill on two grounds. The first is that it is at least a move towards New Scheme. Apparently one has to drop the word "the" in the new syntax. I do not like New Scheme any more than I like the Bill, so I do not find it a convincing argument that the Bill is a step towards it. The second ground on which they defend the Bill is that, after all, they are doing only what the Tories did in a slightly different way. I happen to believe that the Tory scheme was a swindle. The Secretary of State was right to use that phrase, and there has been some argument tonight about the reason why he thought that it was a swindle.

There was a book published by the Labour Party towards the end of the last Conservative Government called, "Twelve Wasted Years"—a hilarious record—in which there is much which could almost have been taken from a recent document circulated to hon. Members by the Institute of Directors, though relating to a rather different Government: The Tory scheme has four fundamental faults". The first is: None of today's pensioners benefit from the new graded scheme. The second is: … there is no dynamic principle incorporated in their scheme to relate pensions automatically to rising earnings. The third is: The Tory scheme does not even give pensioners protection against rising prices. The fourth is: The main objective of the scheme was to increase the share of the cost of pensions paid by the insured employee and decrease the share paid by the Exchequer. I agree with all four of those criticisms of the Tory scheme. Finally, it was said: Clearly, the new Tory" 'pension scheme' is really a tax measure, designed to make working people pay more for their pensions in order to relieve the wealthier taxpayer from contributing his proper share towards State pensions. I am not certain how far the Government have come from that. Looking at their New Scheme, it seems that they intend to have just the same faults. Certainly that last criticism is as true of their scheme as it was of the Conservative scheme.

Where have both the major parties gone wrong? In my view, they have gone wrong in confusing two matters. They have confused the deficits on basic pensions with the gap between those in occupational schemes and those who are not. They are entirely different problems which have to be tackled in separate ways.

The basic pension, treated separately, should be adequate for people to live on, and it must be above whatever we call subsistence level. Then, having dealt with the basic pension, the further provision should be left to private schemes and not involve the Government. That is what I mean by a partnership between private and State provision. It is not what is meant either by the Government or, I regret to say, by the official Opposition Front Bench, though the hon. Member for Kensington, South (Sir B. Rhys Williams) has made it clear that he is prepared to throw that overboard.

The Minister of State asked the noble Lord three questions. Would he give a higher pension and, if so, how much, and how would he pay for it? I would answer those questions in this way. Yes, I would give a higher basic pension. I would try to relate it as a proportion of the average industrial wage, and I should think in terms of paying a married couple's pension at the level of half the average industrial wage for a working man. I do not say that we should go to that tomorrow; it might take five to seven years to get there. At this stage it would be something like £11 10s. a week. Once we had reached that, we should keep it there, and keep the basic level related to that figure.

How would we finance it? We would finance it by a social security tax which would be a percentage on a firm's payroll. This would be an easy tax to collect, two-thirds paid by the employer and one-third paid by the employee.

What about the disappearance of the contributory principle? I have already in an intervention challenged the Minister of State on the whole issue of the insurance principle and the contributory principle. I do not know whom he is trying to fool. I do not know whom the people who advocate a contributory principle in our insurance scheme are trying to fool. Are they trying to fool the I.M.F. into thinking that so long as it is contributory it is not inflationary and is not evil? Are they trying to delude public opinion into thinking that there is something moral about a person getting what he has paid for? They do not fool me, because there is no correlation between the money that we pay and the pension that we shall get, and there has not been for many years.

There is much glib talk about people wanting to establish a right to a pension. They do not have a right because of the contributions they make; they have a right because we have passed an Act of Parliament which pays them a pension. It has nothing to do with the contributions they pay. How Parliament provides the tax once it has decided to pay the pension has absolutely no effect on the basic right of the individual to draw that pension.

I have said enough on the basic pension and will deal now with what I call the further provision. I have always recognised that if we were to leave the State with the basic pension and rely on private schemes for everything over and above that up to 60 to 80 per cent. of former earnings, which is the level of pension which I would like to see, some sections of industry would be unable to join any occupational scheme. Some might be unwilling; some might even be unable. Therefore, the individual employee working in a firm where there is no contributory pension scheme is under a severe disadvantage because, although he can have a scheme with an insurance company, only his contributions will go in, whereas a person in another firm which has an occupational scheme has the benefit of the firm's contribution to his pension.

I want to put forward what I think is a fairly new idea for solving this dilemma. It is not entirely original, but it has Liberal origination because it first appeared in the News Chronicle on 16th October, 1958 in an article written by Mr. Desmond Banks, who is now President of the Liberal Party.

An employer without a pension scheme should pay a levy for every employee into a central account. I will come later to what that levy will be. Any employee who wishes to and who works in a firm without an occupational scheme may put up to, say, 5 per cent. of his income into a private scheme run by an insurance company or any of the other private bodies that provide schemes. That is his contribution. But then his contribution should be topped up from the central account by a contribution to the premium, and this might be, say, 3 per cent. of the employee's income. It would mean that, with his 5 per cent. and the 3 per cent. from the central account, he would be paying in something like 8 per cent. to a private insurance scheme.

It is easy to work out the mathematics. If one third of the employees not in occupational schemes decided to do this to the maximum, each employer's levy would be 1 per cent. of each employee's wage. That is what I mean by the level of the employer's levy.

What are the advantages? The first advantage is that it is voluntary for the individual. He does not have to contract out; he can contract in. Second, it separates the basic old age pension and further provision. I hope that I have given my reasons for thinking that desirable and indeed essential.

Thirdly, it is not in the least inflationary and would involve real savings by individuals. Fourth, there is no Government subsidy and absolutely no cost to the taxpayer in administering the central account, unless there was a tax subsidy, and even that would not be necessary.

Fifth, there is no barrier at all in the scheme to the extension of private schemes. I have already said, and indeed I have warned insurance companies on their own ground, that the insurance companies are allowing themselves to play a rather timid mouse to the Government's cat by not opposing the new Government scheme. I believe that once the Government have entered the area of graduated pensions in the way in which they are now doing there is no end to how far they will advance. If they pursue such a scheme, they will be forced, whatever their political persuasion, to mop up most of the present private sector.

Sixth, there are no actuarial problems for the State because there is no State fund. It is not the responsibility of any State fund.

Seventh, a man without an occupational scheme is put on a level footing with a man who is in an occupational scheme. I believe that this plan could form a working alternative to the Government's proposals. It is even preferable since it overcomes all the disadvantages of the Government's scheme and it has a great many advantages of its own.

It is not too late for the Secretary of State to change his mind. He merely has to ensure that the green edges of his White Paper get more and more green until gradually they cover the whole of the page. He can then quietly dispose of his scheme and write a new one, or, preferably, he could allow me to write it. I hope that he will consider the criticisms which have been made in this debate, not only of the detailed proposals in the Bill but of the more general proposals which he has put forward in White Papers and in speeches, and will realize that there is a need for a different approach to the problem of pensions in this country in the future.

9.44 p.m.

Mr. Alec Jones (Rhondda, West)

I am sure that the hon. Member for Cornwall, North (Mr. Pardoe) will understand if I do not follow too closely his arguments. I share his views about the disabled income group, but tonight it is my intention to concentrate on only one small point in the Bill.

Some of my hon. Friends on this side of the House have been wary of some of the statements made by my right hon. Friend the Secretary of State for Social Services, but tonight I should like to congratulate him and all involved in bringing forward this Bill, which increases benefits to so many people in need. I am particularly grateful to him for the provisions of Clause 4 and the extension of the death grant. This is a somewhat morbid topic, but it has been referred to by several of my hon. Friends.

A number of people in the country, our fellow citizens, through no fault of their own suffer considerably. They suffer financial hardship, emotional stress, and great unhappiness and distress for long periods. Some of my constituents have suffered from this hardship for 25 years. I refer to those unfortunate families who have relatives—sons and daughters—who are mentally sick and confined for years, sometimes for life, in mental hospitals and institutions.

I have a constituent who, for 25 years, has had a son in such a mental hospital. For 25 years my constituent and his wife have paid weekly visits, involving considerable costs in travel and in providing extras which this very dependent son requires. These costs have been a serious financial burden on my constituents. But they are nothing compared with the emotional strain and anguish under which they have lived for these 25 years.

It is my constituents' dearest wish that their son should die before them and that he should be buried in the family grave, at least uniting this tragic family in death. Without the Bill this could not be, for my constituents—now old age pensioners—after 25 years of these extra expenses, now amounting to 30s. a week, would be unable to pay the costs of such a funeral without the extension of the provisions of the death grant.

The White Paper, in paragraph 86, states: The death grant will be extended, on the insurance of close relatives, to cover the deaths of handicapped people who were living with them … I was very disappointed when I saw that in the White Paper, because it would now allow or cater for those tragic families who have mentally sick children living in institutions. Therefore, I wrote to my right hon. Friend, and he replied: I can assure you that when the necessary legislation is considered, the point which you make will most certainly be in mind. I have not long been a Member of this House, but I have become a little cynical sometimes about some of these promises. However, I was delighted to see that Clause 4, as I read it and as I hope my right hon. Friend will confirm, not only fulfils the promise in his letter to me, but will enable such tragic people as my constituents to realise what is, after all, a very modest, though heartbreaking desire.

I ask my right hon. Friend, however, to examine the problem of helping these tragic people not only by extending the cover of the death grant, but throughout the long years when they have to carry these financial and other burdens alone. For example, my constituents do not qualify for rate rebate, because their income is just above the rate rebate level. The rate rebate scheme does not permit the expenses of visiting such dependent children to be taken into account.

I had no other purpose in speaking this evening than to draw to the attention of the House the provisions of the extra coverage of the death grant, and particularly to thank my right hon. Friend for the way that he has introduced it into the Bill. Even if I did not support the other parts of the Bill—which I certainly do—I welcome it for the compassionate provisions of Clause 4.

Mr. Tim Furtescue (Liverpool, Garston)

I should like to begin by referring to a brief exchange that I had with the Minister of State earlier—I am sorry that he is not here—when he seemed to cast doubt on my views that there is a considerable laxness in employment exchanges in administering unemployment benefit. I still hold that there is. I should have liked to ask the hon. Gentleman, had he been here, why it is that a year ago his right hon. Friend the Member for Lanark (Mrs. Hart), who was then the Minister, found it necessary to introduce into the offices of the Ministry of Social Security a considerable tightening up to prevent unemployment benefit or supplementary benefit, as it is there, being unjustly paid. If that was right, why is it not right to introduce similar measures into the administration of employment benefit at employment exchanges where this money is paid out by the Department of Employment and Productivity on behalf of the Ministry? If the Minister would be kind enough to write to me on that subject, I should be very interested to have his reply.

The House, and indeed the whole country, have been intrigued and concerned at the spectacle of the Secretary of State, caught in the tangled undergrowth of pensions and social insurance, bravely brandishing his flashing non sequiturs, and finally uncovering last January a grandiose structure which our grandfathers would immediately have recognised as a folly. This evening we have before us the first piece of legislation conceived in the shadow of that folly in which, to quote the right hon. Gentleman, the Government have thought it right to move towards the new scheme of national superannuation by raising most of the additional contribution on an earnings related basis."—[OFFICIAL REPORT, 10th June, 1969; Vol. 784, c. 1239.] That being so, it is proper for us to consider and challenge this evening the conventional wisdom on which last January's White Paper and thus the Bill are based.

I first direct the attention of the House to the whole principle of pension benefits being paid only in return for pension contributions, a principle which is enshrined in the Bill. The principle is one which is taken for granted in the White Paper, where wholly unsupported statements are made to demonstrate that it is unchallengeable.

Paragraph 25 of the White Paper says: It is as true today as when Beveridge wrote his Report that benefit in return for contributions is what the people of Britain desire.… People do not want to be given rights to pensions and benefits; they want to earn them by their contributions. As a matter of interest, having read that, I turned to the original Beveridge Report, which I have here. That quotation is taken from paragraph 21, the first sentence of which is rather different from the sentence quoted in the White Paper. A few small words have been left out, which make the matter rather different. Beveridge said: The first view is that benefit in return for contributions, rather than free allowances from the State, is what the people of Britain desire. He stated it as a view, and he went on to say: This desire is shown both by the established popularity of compulsory insurance,"— I have never heard that compulsory insurance is particularly popular— and by the phenomenal growth of voluntary insurance against sickness, against death and for endowment.… To me it seems that the phenomenal growth of voluntary insurance would be a sign that people were turning away from compulsory insurance, and would not be evidence that compulsory insurance was particularly popular.

Beveridge went on to say: It is shown in another way by the strength of popular objection to any kind of means test. I think we can say that today, after 20 years, popular objection to any kind of means test is certainly not as strong as it was when Beveridge wrote his report.

Beveridge then said in that paragraph: Management of one's income is an essential element of a citizen's freedom. That, once again, does not seem to point to the necessity for pension contributions paying for pension benefits. If people really want to earn benefits by pension contributions, which is what the White Paper and the right hon. Gentleman say, one would expect them to be up in arms at this moment against the present system, because they do not do so now, and have not done so since the National Insurance Act, 1948.

The other day my hon. and gallant Friend the Member for Lewes (Sir T. Beamish) asked a Question which elicited an answer from the Minister of State. He asked what proportion of the full flat-rate pension to which an employed man is entitled on his retirement today with the required yearly average of 50 contributions paid or credited since 1948 is covered by the employer's contribution, the employee's contribution and general taxation, respectively …?"—[OFFICIAL REPORT, 9th June, 1969; Vol. 784, c. 186–7.] The answer in a nutshell was that the employed married man, in the 20 years since 1948 when the Beveridge scheme first came into play, had, if he retired this year, contributed 8 per cent. of the cost of his pension.

This great thesis that the Government have, that people want to buy pensions with their contributions, has never been in force at any time. It is based on a complete lack of fact. It is based on wishful thinking or conventional wisdom—I do not know which; but certainly it is not something which should not be challenged. Lip-service has been paid to it for many years from both sides of this House, though in the last debate it was almost admitted that its only advantage is, perhaps, psychological. But I suggest to the House that a man earning say, £25 per week who has various deductions made from his pay cheque—and one of them at the moment, if he was not contracted out, would be a sum of 26s. for his insurance contribution—would feel no psychological difference at all if that 26s. was not separately identified in his wage slip but was simply part of a larger sum deducted overall from what he was meant to receive, provided, of course, that his pension at 65 was guaranteed by an Act of Parliament, as it is today. His total deductions would be the same and his take-home pay would be the same.

I suggest that before the Government base their whole policy on the thesis that that man would object to that particular deduction losing its identity, they should take steps to see whether he would or not, and should not rely on what Beveridge laid down in 1942 in the middle of a war at a time when social conditions in this country were very different from what they are now. There are ways and means of finding things out today through market research programmes, and I contend that this belief, held for such a long time, is in urgent need of re-examination. My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) suggested a second Beveridge, and this could be one of the themes on which such a committee could now concentrate.

A powerful support for the abolition of the contributory system has come recently from Sir Paul Chambers in his Beveridge Memorial Lecture when the deviser of our unique pay-as-you-earn system with all its complications pointed out that the Government's new proposals for pension contributions and benefits are outrageously complicated and could be drastically simplified by the abolition of contributions and paying for all the provisions out of taxation. The right hon. Gentleman, responding to Sir Paul, said it would mean a very great increase in the standard rate of income tax—in one case put at 5s. 7d. and in another at a 6s. 9d. increase. I will not argue on that, but he said it would be very large. But this is not so because, as Sir Paul pointed out, any increase in taxation necessary to pay pensions would be exactly balanced by the reduction in contributions from employers and employees so that no more in total would be paid. The only difference would be that the tax, now known as a contribution, would be known by its proper name of a tax, and the enormous administrative task of recording every individual's contribution and keeping records, which in most cases have to go back over 40 years, could be eliminated.

In brief, since all taxation, including pensions contributions, goes towards financing Government expenditure, including pensions, in the year in which they are collected, why not abandon the whole expensive farce of pensions ostensibly being earned by contributions?

I wish now to turn to the second suspect principle on which the scheme and the Bill and its implications are founded. The Bill provides for graduated contributions on earnings between £18 and £20 a week to be increased from ½ per cent. to 3¼ per cent. for all contributors, including those contracted out. This will cause an increase of 7s. 7d. per week in contributions to a man earning £30 a week or above, making a total weekly payment for the man of 34s. per week, an annual total of £88 4s. or, for a man on £30 a week, nearly three weeks off his gross wages. Perhaps one can accept that at this minute it is the only practical way of raising the money so desperately needed to pay for the pension increases which must come in the autumn, and to balance the books not this year but next. But then, not in the Bill but in the White Paper which we have had to cover the Bill, the right hon. Gentleman gratuitously announces the additional graduated contributions or increased graduated pension rates, both for those participating in the pension scheme and for those contracted out. Nothing is said about the cost or how the pensions are to be paid for. Last week, the Economist calculated—

It being Ten o'clock, the debate stood adjourned.